Winston Peters’ dream of having a government-owned and operated KiwiSaver scheme is a step closer to becoming a reality.
New Zealand First MP, Fletcher Tabuteau’s, KiwiFund members’ bill passed its first reading on Wednesday. It will be considered by the Economic Development, Science and Innovation Select Committee, before having its second reading.
The 807-word long Bill establishes an independent working group of banking, savings and retirement sector specialists to advise on setting up a government KiwiSaver provider based on principles such as:
- lower and transparent fees;
- preferential treatment for New Zealand-based investments;
- social and ethical investment;
- the support of a government guarantee;
- keeping profits in New Zealand.
Speaking in Parliament, Tabuteau said the KiwiSaver scheme was a “roaring success” increasing the proportion of New Zealanders with a retirement savings scheme from 16% before its introduction to 75% today.
Yet he said fees were near static; his calculations showing the typical KiwiSaver member with a balance of $500,000 at maturity would have paid a total of $100,000 in fees.
The Financial Markets Authority’s (FMA) latest annual KiwiSaver Report shows default KiwiSaver providers’ fees were stagnant between 2016 and 2017.
The orange line in this graph shows active members' fees as a percentage of funds under management, and the grey one, default members'.
Tabuteau also questioned the legitimacy of providers saying higher fees enable them to engage more with their investors.
This FMA table shows the portion of members in default KiwiSaver funds who have actively chosen to be there.
Tabuteau likened KiwiFund to Kiwibank, saying: “New Zealand history is on our side in fact. Kiwibank tells the story of determination, of conviction. Everyone in this house knows that Kiwibank was the right thing to do.”
It is worth noting New Zealand already has a government-owned KiwiSaver provider - Kiwi Wealth. Like Kiwibank, it is a wholly owned subsidiary of Kiwi Group Holdings, which is owned by New Zealand Post, Guardians of the New Zealand Superannuation Fund and the Accident Compensation Corporation.
Despite being non-committal on the Bill when it was drawn from the ballot in December, Labour came in to bat for it.
Labour MP Michael Wood focused on the issue of KiwiSaver investors paying disproportionately higher fees than institutional investors, saying: “Why wouldn’t we look into that?”
‘Misguided’ and ‘unnecessary’
Yet the Opposition highlighted a number of flaws in the Bill, with National’s Associate Commerce Spokesperson, Andrew Bayly, saying it was a classic New Zealand First policy that sounded “popular” and “compelling” on a high level, but was “misguided” in reality.
He questioned whether adding another KiwiSaver provider to the array of providers we already have - including ones that prioritise low fees - would actually increase engagement and prompt investors in default funds to look further afield or make an active choice about being there.
Bayly pointed out that concentrating a fund by giving New Zealand-based investments preferential treatment would increase its risk profile, which would affect returns.
He also said having a government guarantee would create a “moral hazard”, as other providers wouldn’t have the same backing.
Also speaking in Parliament, National MP Lawrence Yule questioned why New Zealand First was wasting time and resources introducing legislation to review the KiwiSaver scheme, when it could do so through an inquiry into fees, transparency or whatever else it was trying to fix.
Furthermore, he raised the point: “There is nothing [in law] to currently prevent anybody, including the Rt Hon Winston Peters, setting up a superannuation fund himself, with very low fees, without a government guarantee, to actually support the people he’s claiming he wants to support.”
He questioned why yet another “working group” needed to be set up.
‘The last thing it needs now is more political tinkering’
The Financial Services Council - an industry body that represents a number of KiwiSaver providers - likewise questions whether the Bill is necessary.
Its CEO Richard Klipin said there is “real transparency” around fees, with investors able to choose funds on a spectrum from low fee passive funds to high fee actively managed funds.
“The fee debate is an important one to have. However the fee discussion in the absence of value is only considering half the issue and does not give the full picture,” he said.
“KiwiSaver has just entered its second decade and is beginning to mature and have New Zealanders starting to properly engage with it. The last thing it needs now is more political tinkering and another working group.
“Instead we think industry and government resources would be better focused on improving New Zealanders' understanding of KiwiSaver, and to build on the range of advice and resources that are already available.”
More political pressure than regulation
The Financial Markets Authority (FMA) has in recent years put notable effort into providing the public with more KiwiSaver resources.
For example, in November last year it released a ‘KiwiSaver Tracker’ - an online tool that presents the information KiwiSaver providers give investors through their quarterly fund updates in an interactive tool.
The Tracker provides granular information about individual funds returns after fees.
The FMA has also required providers from this year to start disclosing fees in dollar terms on members’ annual statements.
Its CEO Rob Everett has in the past said the sector is now large enough for fees to fall. He has also put pressure on default KiwiSaver providers to better engage with their members so they move to the most suitable fund for them.
However this pressure Everett has applied hasn’t translated to regulation.
Commerce and Consumer Affairs Minister Kris Faafoi earlier this month said he wanted to see default KiwiSaver providers cut their fees, yet in November told interest.co.nz he would take a “considered approach” so wasn’t keen on capping fees.
Is further research and a ‘working group’ really necessary?
The other Government agency that has done extensive work on KiwiSaver is the Commission for Financial Capability.
In its latest three-yearly Review of Retirement Income Policies, it recommended the following changes be made to KiwiSaver in the short term:
- Increase employer and employee contributions from 3% to 4%.
- Automate the option to increase member contributions up to a certain level.
- Add 6% and 10% to increase the range of employee contribution rates options.
- Decouple the age of access to KiwiSaver funds from NZ Superannuation and discuss appropriate eligibility age for access to KiwiSaver funds.
- Allow people over 65 years to join KiwiSaver.
- Change the name of ‘contributions holiday’ to ‘savings suspension’ and reduce the maximum time to one year.
- Require KiwiSaver providers to disclose the total dollar cost of all fees on annual statements.
The last recommendation is the only one that has been enacted.