Increased regulation of KiwiSaver funds runs the risk of stifling investment innovation, according to Fidelity Life chief executive Milton Jennings.

However, Financial Markets Authority (FMA) chief executive Sean Hughes says there are gaps in the regulation of KiwiSaver schemes and there needs to be greater cooperation between the country’s regulators.

Jennings conceded the Huljich KiwiSaver saga – where investors were misled about the performance of the Huljich Wealth Management KiwiSaver fund – “certainly exposed a gap.”

However he said prudential supervision – assessing whether undue risks are taken with investors’ money – would prove complicated.

“Do you go down to [assessing] single stocks? It’s very hard,” he said.

Jennings also said such regulation could result in more conservative, safety-first investing, citing the example of Fidelity’s Options fund.

“We had noises from the regulators saying it’s too high risk for KiwiSaver, but its performance, there’s been volatility but over the five year period, but it’s probably the top performing fund, so do you want to stop that type of investment?”

Milford Asset Management’s investment committee chairman Brian Gaynor said funds’ investment stance was already outlined in prospectuses documents.

“And you can see by the way directors are being prosecuted regarding prospectuses at the moment it’s a very powerful document in terms of the law.”

He did say, however, that two “glaring gaps” exist around KiwiSaver regulation not mentioned by Hughes.

“The disclosure of fees is probably the weakest area, the second is probably consistency in how to measure and report returns and performances,” he said.

Gaynor advocated the establishment of a KiwiSaver comparison website managed by a body like the FMA or Retirement Commission that used standardised reporting measures.

“We don’t have a good market in information in relation to KiwiSaver funds as we do in the airfare market,” he said.

After years of repeated tinkering in successive Budgets, KiwiSaver looks set to finally be left alone this year.

Prime Minister John Key has announced in a pre-Budget speech that there will be no changes to KiwiSaver tax credits.

Last year’s budget saw the government halve the maximum yearly tax credit from $1040 to $520, a change that kicked in earlier this year.

It also flagged an increase in the minimum employee contribution from 2% to 3%, which is due to come into effect next year.

Not-for-profit group Workplace Savings NZ, a membership organisation representing the superannuation industry, has welcomed Key’s comments.

Workplace Savings NZ chairman David Ireland said the certainty that message provides would come as a welcome relief to all those involved in workplace savings.

“Since it was first established, KiwiSaver has been subject to ‘design tinkering’ in just about every Budget, so this will be a refreshing change.

“It means the only change KiwiSavers are likely to see on the horizon, at a practical level, is the proposed increase in contribution rates from 1 April next year.

“There are currently over 1.9 million New Zealanders using KiwiSaver for their savings, and they should be reassured by the Government’s announcement.”

KiwiSaver is about to enter a new stage in its life cycle, with those aged 65 or over who joined on day one becoming eligible to withdraw their savings on 1 July.

“The stability signalled in KiwiSaver incentives and design is great news.  It will help free up providers’ capacity to develop options for helping those KiwiSavers maximize the long term benefit of those savings,” said Mr Ireland.

While KiwiSaver has been spared in this year’s Budget, future changes are inevitable: National plans to introduce auto-enrolment at some point, while Labour has said it will make the scheme compulsory.

Changes to KiwiSaver that could have a big impact on how much money people contribute the scheme have passed largely unnoticed by many members, a KiwiSaver boss says.

The changes, which kicked in this month, affect the way KiwiSaver is taxed, with the government introducing the Employer Superannuation Contribution Tax.

As well as taxing employer contributions to the scheme for the first time, the government has also halved the maximum member tax credit per year from $1040 ($20 per week) to $520 ($10 per week).

Tower Investments chief executive Sam Stubbs said, “The on-going government subsidy is a lot lower than it was… it [KiwiSaver] will be a significant source of revenue over time as balances grow.”

He said the changes were a sensible step for a government that is trying to avoid the budget blow-outs and sovereign debt crises facing a number of other nations.

However, he said individual KiwiSaver members would have to re-calculate their contribution rates, due to the reduction in the taxpayer-funded subsidy meaning a reduction in the amount of money going into their accounts.

“We haven’t noticed any people withdrawing as a result of these changes, but it does mean KiwiSaver balances will grow slower.”

Stubbs said he didn’t think many KiwiSaver members were even aware of the changes or of the “magnitude of the subsidy” before they kicked in.

“What we now realise is that regardless of the subsidy [KiwiSaver] will be the de facto way Kiwis save.”

About 90% of New Zealanders’ savings outside of bank deposits are now flowing into KiwiSaver, he said.

“In hindsight KiwiSaver will be seen to be one of the most successful savings schemes anywhere in the world.”

A savings expert has called for a radical overhaul of the KiwiSaver default system, which would see the current default providers lose their “privileged” position in the market.

In the Retirement Policy Research Centre’s latest PensionCommentary, co-director Michael Littlewood has questioned the need to renew the agreements with the six default KiwiSaver providers in 2014, when their current deals are up for renewal.

By then, most New Zealand employees will be KiwiSaver members and auto-enrolment will be unnecessary, he said.

However, “…if auto-enrolment continues to be a feature of KiwiSaver, there needs to be some kind of default provider regime. A default investment option is also needed because employees who are auto-enrolled will, by definition, have made no decision about how their savings are to be invested.”

Littlewood said the Government “should not give a commercial and marketing advantage to a small group of financial service providers, especially if they do not pay for the privilege.”

He has suggested two alternatives: the first and preferred option is to extend the Inland Revenus involvement with auto-enrolled members from the current eight weeks to a year.

If the member has not chosen a KiwiSaver provider by the end of 52 weeks, the member will automatically begin a contributions holiday. The membership will stay in the Inland Revenue’s ‘holding’ scheme until the member chooses a provider.

Alternatively, he said the government should prescribe a set of minimum standards for default providers (there are none at present). Any KiwiSaver scheme that continuously complied with those standards would automatically be on the Inland Revenue’s default provider list.

Littlewood said the initial default provider appointment process in 2006 was “flawed” and there has been no follow-up, or research, to see whether the performance of default providers as a group has justified the “commercial favour” conferred on them.

He also opposed the Savings Working Group’s proposal that would have seen the government become a commercial competitor to private providers.

“Aside from size, and the absence of a profit motive, the government has no competitive advantage in delivering superannuation services. On those grounds, the government could justify involvement in any business activity.”