A closer look at how much of a task it's going to be shifting billions of dollars invested by default KiwiSaver members to new providers and higher risk/return funds

I guess the takeaway is the government wants to make it mandatory for all Kiwisaver members to take on even more risks and prop up the share market in NZX with the fund providers sharing the costs.

This comes at a time when the equity market is probably at the peak- how thoughtful and caring.

MinterEllisonRuddWatts law firm partner, Lloyd Kavanagh said the scale of the shift could cause “significant” price volatility if poorly managed.

Given the blunt way Labour handled the reselection process, it doesn't bode well for the handover. Perhaps this will be a mini black swan event that shows how close to the edge our markets are in this economy. $4b in the global scheme of things is tiny, but if our markets grind to a halt as a result it will undoubtedly unnerve the larger ones regardless of the reason. FUD is contagious after all. It would be ironic in the face of trillions being printed in the name of QE if $4b of real savers money was the catalyst that led to a global black swan. Time to get out the popcorn and wait and watch.

Fortunately I'm with none of the new ones as the directive " (including a new requirement to exclude investment in fossil fuels production) " is a Labour party sop to CC

The Government last year decided that as of December 1, all default KiwiSaver funds need to be ‘balanced’ rather than ‘conservative’. In other words, a default fund needs to be slightly higher risk, higher reward.

NZ bank depositors face more risk for virtually nil rewards while banks reap obscene profits with virtually no capital risk exposure.

According to the Reserve Bank, the new capital requirements mean banks will need to contribute $12 of their shareholders' money for every $100 of lending up from $8 now, with depositors and creditors providing the rest.

Overvalued stock markets are much the same in terms of risk profile.

The idea that “low interest rates justify high stock valuations” is really a statement that “low interest rates justify low expected stock returns as well.” Those high stock valuations are still associated with low prospective future stock market returns.

Worse, the notion that “low interest rates justify high stock valuations” assumes that the growth rate of future cash flows is held constant, at historically normal levels. If, as we presently observe, interest rates are low because growth rates are low, no valuation premium is “justified” by low interest rates at all.

Presently, the combination of record low interest rates and record high stock market valuations does nothing but add insult to injury.

...the iron law of investing is that a security is nothing but a claim on a future stream of cash flows. Valuation is a crucial determinant of long-term returns. The higher the price an investor pays for those cash flows today, the lower the long-term rate of return earned on the investment..

The corollary is also true. The lower the long-term rate of return demanded by investors, the higher the price moves today. So clearly, changes in investors' attitudes toward risk will strongly affect short-term returns. If investors become more willing to take market risk, it is equivalent to saying that they are demanding a smaller risk premium on stocks (that is, a lower long-term rate of return). Prices rise as a result. Now, the fact that current stock prices are higher also implies that future long-term returns will be lower, but that's part of the deal. Courtesy of Hussman Funds

May trash the share prices unless funds start selling their shares gradually now and artificially boost them as new providers buy those and more come December.

Providers do need to make a profit. How long before Kiwisaver funds become unprofitable through lack of attention to their management and few want to even bother.

Should of had NZ ownership somewhere in the weighting

I’m not sure if I’m going to get moved or not. Pretty sure I went default all those years ago and that just happened to be my bank which is handy. Since then I have changed to growth from conservative. So does that make me not in a default fund? If so all the losing default providers will be ringing round encouraging people to change fund type and the number being switched may be a lot less than expected.

The Government is going to make $$$ out of this as well. Higher returns on the Balanced funds = more tax from the interest.

One thing is for certain, staff of the five ditched fund managers will be burning the midnight oil and working weekends up to December 1 writing to their default fund holders convincing them to transfer to one of their own other funds. AMP for instance is not going to let 112,620 current customers simply walk out the door.

Kiwisaver is still a dog. Never liked it from the start and opted to pay off an extra $50 a week on the mortgage instead. Looking back I made the right choice in paying off the mortgage earlier, zero risk and guaranteed returns.

David Clark pulling yet another swifty on the unsuspecting public

This would be sensible if it also accounted for age of investor. Hopefully anyone close to retirement will realise the risk and make decisions that are right for them. If they're in a default scheme now they're probably better off staying there whether ir not it was an active choice so may need to change.

For Kiwisaver to be a real incentivised investment vehicle tax concessions would need to be part (with eventual super means testing at the back end). Flat taxing it would also eliminate the ridiculous situation where an investor gets penalised if they underestimate their PIR but cannot recover an overestimation.

"Billions of dollars invested by hundreds of thousands of KiwiSaver members"

This is the same misunderstanding I've just been listening to on Morning Report - in their case, rabbiting on about 'investors'.

Lets be very clear: dollars are merely markers, debt-issued. If there ain't anything on the shelves, a dollar is worth nothing. And it's merely digital tokens we're talking about, not some guaranteed ear-mark of some future resource or energy-supply.

Secondly, investment isn't putting something in; it's an expectation of taking something out - that something being 'more'. So the combined bets have been of an ever-bigger tomorrow, indefinitely. That cannot be had (you can never have unfettered growth within a bounded system). So as the opportunities diminish, the bets become more risky. Had to happen.

I've never joined - preferring to purchase what I expect to need in the future, now. Before those shelves empty. There are going to be some very grumpy people, when they realise their bets were on the wrong horse(s).

The last thing KiwiSaver members need is for politicians to micromanage our funds. KiwiSaver providers are meant to make independent investment decisions in order to maximise returns. Politicising these decisions will ultimately result in lower rates of return.
Once the Government starts sticking its nose in, where does it stop? Will KiwiSaver providers be barred from investing in, say, meat production? Alcohol? GMOs?