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ANZ Wealth boss John Body says govt should introduce KiwiSaver auto-enrolment before it resumes contributions to NZ Super Fund

ANZ Wealth boss John Body says govt should introduce KiwiSaver auto-enrolment before it resumes contributions to NZ Super Fund

By Gareth Vaughan 

The Government doubling the number of KiwiSaver default providers to 10 is something the industry could sustain, according to ANZ's managing director of wealth John Body.

Body told in a Double Shot interview ANZ, one of five existing default providers, is - not surprisingly - "very keen" to retain this status.

"We think we've added a lot to the industry both in terms of the returns we produce for investors, you just have to look at the Morningstar (and) FundSource awards, and the work we've done on the structure of investment portfolios," said Body.

The outcome of the Government's review of KiwiSaver default provider arrangements is due sometime before April. The current default providers are AMP, ASB, ANZ, Mercer and the now Fisher Funds controlled Tower.  Their seven year term expires on June 30. Others keen to become default providers include Westpac and BNZ.

The Ministry of Business, Innovation and Employment says the basic criteria for selecting default providers remains the same being investment capability, corporate strength, administrative capability, track record and stability. However, it has also introduced a new criteria whereby providers will be required to offer investor education to default members. There's more from MBIE here.

The Government has suggested the number of default providers could rise as high as 10. Body said if this happens it wasn't a big issue.

"Fundamentally competition's good and we're strong believers of that. As long as the industry's well governed and well managed, and there's really good visibility around who the providers are and their structure, governance and their contribution to things like investor education, having 10 providers, it's manageable for the industry," Body said.

The Government has stated KiwiSaver default providers will retain a "conservative" investment approach. Body said ANZ would've liked to have seen this changed to a "lifestyle" approach.

"The Government should have looked at a change. We think it's early enough in KiwiSaver's life that it's early enough to make a change without people having massive balances that are going to be impacted," said Body.

"Fundamentally the argument holds the same. If you're 25 years old  you've got 40 years minimum of investing. Being in a default fund is going to mean you're going to have less savings, less retirement savings. So it's not maximising people's opportunity."

"Also I think in a way it (the conservative investment setting) stops a lot of the natural investor education that would take place by putting people through different growth funds, conservative up to growth, over their lifetime. So I think we're missing an opportunity here and we're a little bit disappointed, despite our lobbying, that there was no change." See more on this in an interview with ANZ's former general manager of investment
Simon Botherway here.

'Bring in KiwiSaver auto-enrolment'

 Separately, Body said the Government should introduce KiwiSaver auto-enrolment before it resumes contributions to the New Zealand Superannuation Fund.

"We would like to see auto enrolment jump the queue in front of starting up contributions to the Super Fund again because we think that's a better long-term platform for funding superannuation needs," Body said.

In 2012 Finance Minister Bill English put a plan for KiwiSaver auto-enrolment on ice because of the estimated $514 million cost over four years, saying then it may be introduced after the Budget was in surplus from 2014/15. Last October Prime Minister John Key said on TVNZ Breakfast that auto-enrolment would be bought back "when we can afford it and that'll be quite soon."

Auto-enrolment is touted as a form of "soft compulsion" because those who are enrolled can still opt out.

 The National-led government suspended contributions to the Super Fund in 2009. English says this was because of fiscal deficits and government debt increasing, meaning it was "imprudent to borrow more to invest in global financial markets." Last December English said the Government plans to resume NZ Super Fund contributions from 2019/20, a year earlier than forecast in last May's Budget.

 As of December 31 the Super Fund stood at $25.20 billion having returned 9.57% per annum after costs but before tax since inception, including 26% in 2013. It started investing in September 2003 with $2.4 billion in cash.

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KiwiSaver ahead of Super? Has Treasury looked at the inefficiencies and costs of KiwiSaver versus the Superfund? 
If the returns are better at the KiwiSaver providers, why isn't the NZ Superfund invested there?  Or vice versa?  Must be cheaper to have NZ Super manage the funds given they aren't trying to make a profit. 
Or, why not consolidate in a single vehicle (NZ Super) with the investor allowed the opportunity to choose the investment manager?  Surely this would be more efficient than the current approach?
Kiwi's are conservative by nature.  Mr Body would have a lot of people having sleepless nights under his proposal. 
Given a lot of Kiwisavers don't contribute (they're probably children with parents who signed them up for a "free $1000") wouldn't the ANZ proposal increase the fee's paid benfitting the provider?  And what of the increased risk?  If I want to see that "free $1000" isn't it better to stay in the conservative fund?
One quote seems to imply a guarenteed better return in a growth fund than the default conservative.  This isn't true.  There's a big risk, as we saw with the GFC, that you may have less.