KiwiSaver regulations fast tracked

Concerns over KiwiSaver fund management have led to the government fast tracking work to ensure the integrity of KiwiSaver is maintained for the 1.3 million people and $4.88 billion of their money invested in the scheme.

Minister of Commerce Simon Power says in recent weeks there has been growing concern regarding the regulation of KiwiSaver schemes.

Huljich Wealth Management brought the spotlight on KiwiSaver account management after it failed to disclose that its then-managing director Peter Huljich had injected cash into the funds because it had not performed well.

Huljich said he felt morally responsible for the investment decisions, but others said it was to give a false impression about the funds’ performance. The Securities Commission is investigating.

Australian investment research company Morningstar Australasia has also warned KiwiSaver investors to look closely at their providers, as there was a very poor disclosure regime in New Zealand.

Power says mum and dad investors must have confidence that their money is being well managed.

“The Government indicated last month it supports recommendations from the Capital Market Development Taskforce for additional regulation of managed funds, including KiwiSaver.

“We were intending to make changes in this area as part of the current review of the Securities Act. However, in light of recent developments, I have asked my officials to fast-track this work to ensure investor confidence is maintained.”

Power has asked officials to report to him within three to four weeks on whether:

• The monitoring and reporting regime for default funds should be extended to all KiwiSaver funds. This would require detailed quarterly reporting to an expert monitoring panel and require that one of the trustees of KiwiSaver schemes be a trustee corporation, rather than just an independent trustee, as at present.
• KiwiSaver funds should be required to regularly report to investors and the regulator on the returns, fees and assets of each fund in a consistent and comparable manner. At present, the only requirement for non-default schemes is for annual returns, and I am advised these are not prepared in a manner which allows for easy comparison between schemes.
• To increase the ability of the regulator to supervise the trustees of KiwiSaver schemes and hold them accountable for fulfilling their obligations.
• Further powers for enforcement by regulators are necessary.

Annuities market a must with KiwiSaver

The government has proposed it will review the tax treatment of annuities in response to the Capital Markets Development (CMD) Taskforce recommendation and the financial adviser industry says the review is a must because of KiwiSaver.

The CMD Taskforce recommended that the government should support the development of the annuities market and Taskforce chairman Rob Cameron says there needs to be annuities products available for mature investors.

Investment Savings and Insurance Association chief executive Vance Arkinstall says he feels very strongly about this recommendation.

“The taxation of annuities is totally out of date and it overtaxes most people who would be purchasing an annuity.”

He says as New Zealand develops a saving ethic with KiwiSaver leading the way, New Zealand will need to provide the ability for individuals to draw down their savings in income streams which annuities provide.

“We’re very supportive of developing an annuities market because it is totally consistent and goes hand in hand with KiwiSaver.”

Institute of Financial Advisers president Lyn McMorran agrees saying KiwiSaver makes the annuities market a complete necessity as people will start coming out of the scheme with lump sums of money.

“Annuities aren’t offered in New Zealand because the tax structure is not condusive to offer them, therefore there is no demand and no supply.”

She says it is a chicken and the egg scenario, “We need to sort out the tax issue first, and that will create demand which will in turn create supply.”

The government says after the tax treatment has been considered as part of the Government’s tax policy work programme, a timetable will be considered for changes, if any are required.