Regulation not strangulation for KiwiSaver please

by David Chaplin

An industry body argues the biggest risk to KiwiSaver is over-zealous regulation, rather than fund manager behaviour.

WSNZ chief executive Bruce Kerr says the industry body was monitoring “how sweeping the changes will be”.
Under proposed changes announced by Commerce Minister Simon Power late in April, all KiwiSaver providers would have to adhere to the same rules applied to default schemes – in particular the requirements for more regular reporting and stronger trustee oversight.

Kerr said while the organisation supported the broad thrust of proposed KiwiSaver changes but it was opposed to “regulation that simply adds compliance cost for no member value”.

“We believe there is currently no systemic problem with KiwiSaver. In fact in our view, the biggest risk KiwiSaver faces is that overly zealous regulation is rolled out without adequate and effective engagement with all stakeholders to ensure those changes will be optimal.”

He said, for example, many existing employer superannuation schemes and master trusts continued to operate effectively under current regulatory arrangements and could face unnecessary disruption if the proposed new regime was extended to incorporate them.

While Power has excluded non-retail KiwiSaver schemes and other employer-based savings schemes from the proposed changes, he said that decision could be revisited later.

According to Kerr, the Ministry of Economic Development (MED) has indicated the KiwiSaver changes will be included in a new piece of legislation expected to be drafted by August.

“Initially, we thought the changes would be part of the Securities law review.”

WSNZ, which has about 130 representing about 90% of the industry, was also drafting a “high level policy” document for presentation at its conference to be held at the end of August in Christchurch.

Kerr said the policy was unlikely to include a view on the banning of commissions on KiwiSaver products.
“But we’re certainly starting to have conversations about [commissions],” he said.

David is editor of ASSET Magazine.

Let’s stick with carrots for KiwiSaver

The suggestion that more New Zealanders will move to Australia now that its superannuation contribution rate will rise to 12% is another absurd example of the pathetic politics of envy common to this country.
Whether Australia’s superannuation contribution rate is the current 9% or 12% (which it will slowly edge up to by 2019) is neither here nor there to most people.
New Zealanders move to Australia because they can make more money; the weather’s generally better (if you don’t mind the mix of drought and floods), and; the people are alright once you get to know them.
But New Zealand’s financial services industry looks across the Tasman and salivates about Australia’s compulsory superannuation system because it knows that if compulsion were introduced here it would feed them forever.
When those who stand to gain commercially from compulsory KiwiSaver start couching their arguments in terms of the national interest, be very suspicious.
While it has undoubtedly built up a significant pool of capital, Australia’s compulsory superannuation system is not without its problems – it’s complex, prone to constant tinkering and, as Sydney Morning Herald writer, Michael West points out, needs constant attention to prevent gouging at all levels.
By contrast, KiwiSaver is administratively simple, wonderfully flexible and should impose less costs on members. With well over one million New Zealanders already signed up to KiwiSaver, it seems incentives are doing the trick.
It is true that contribution rates are low compared to Australia. Under the KiwiSaver rules, only the 2% employer contribution is tax-free (to get that employees must also contribute 2% of their gross wage or salary). However, members are free to contribute up to 8% of their income to KiwiSaver, which combined with the employer contribution quickly bumps up the savings rate to 10%.
The only problem with this strategy is that you still need to pay income tax on that 8%. Rather than compulsion, perhaps a better way to ramp up KiwiSaver accumulation rates would be to allow those extra contributions to be tax-free: more carrots, less stick.

David Chaplin

KiwiSaver fund managers to be directly responsible to investors

KiwiSaver fund managers will become indirectly accountable to their investors, instead of being able to hide behind auditors, under changes announced last night by Commerce Minister Simon Power.

In one of a raft of decisions, Power moved on the circumstances that allowed former head of Huljich Investments, Peter Huljich, to make cash injections to Huljich Wealth Management KiwiSaver funds to boost returns, and for liability for disclosure ultimately lying with the trustees.

Coverage of trustees by a new super-regulator, to be called the Financial Market Authority, was another of the major shake-ups of securities regulation announced by Power at the INFINZ annual awards dinners for finance industry professionals.

The FMA will also take on responsibilities currently covered by a variety of public and private agencies including the Securities Commission, NZX, Companies Office, Government Actuary, and the Institute of Chartered Accountants.

Major securities regulatory changes announced tonight are:

* a fundamental rewrite of parts of the Financial Advisers Act 2008 to remove its impact on areas clearly unintended;
* a six month extension to July 1, 2010 for registered financial advisers to gain qualifications, although they must still register by December 1 this year, recognising industry concerns that the
* a new “super-regulator” Financial Markets Authority, an agency encompassing the Securities Commission, elements of the NZX regulatory function, and various government agencies’ corporate oversight functions;
* the inclusion of auditors under the FMA rather than regulated by the New Zealand Institute of Chartered Accounts – a big change of heart for Power, reversing views expressed just over six months ago; and
* changes to the law covering KiwiSaver providers, making the fund managers rather than the trustees liable for loss.
* a shake-up in the leadership of securities enforcement with the creation of the FMA.

Power said the new regime would make the KiwiSaver fund manager the issuer, a role currently filled by the trustee, and would be required to make continuous investment performance disclosures matching the “default” funds nominated by the government to invest on behalf of KiwiSavers who do not choose a provider themselves.

“Right now, fund managers have few direct duties to investors and it’s difficult to hold them to account, despite the fact that they are responsible for the investments of the scheme,” said Power.

“The government will move to a regime where the fund manager becomes the issuer, with primary responsibility for the disclosure documents under the Securities Act, and with a direct duty of care to investors.”

Trustees would also owe a duty of care, and be “supervisors of the fund manager” and be subject to the new trustee supervision regime that is currently before Parliament, although Power acknowledged conflict of interest issues would need to be addressed.

“This regime will also ensure that the securities market regulator ca monitor trustees under the new trustee supervision regime.”

Non-retail, employer-based and vocational-based KiwiSaver schemes would not be covered, nor would superannuation schemes.

“However, the government will consider bringing all other superannuation schemes within the trustee supervisory model as part of the wider review of securities law,” said Power, who stressed KiwiSaver would never carry a government guarantee, but that the changes should improve investors’ ability to judge their fund “without wondering if the figures have somehow been doctored”.

10 weeks to go – and much to do

Last week I chaired a one-day KiwiSaver Masterclass conference in Auckland which made me, as an employer, feel much better about implementing a savings scheme in our business.
Basically the thoughts I expressed in an earlier Blog are similar to how others are feeling.
The conference was attended by around 70 people who were predominantly HR and payroll people. A couple of the key takeouts for me were that, yes, the awareness is growing about KiwiSaver, but the knowledge base is still quite low.
In addition to that very few of the delegates had implementation plans in place yet – although the start date is just 10 weeks away.
For SMEs that probably isn’t too bad, but for bigger employers with multi-site operations I suspect things are going to be tight.
One of the issues we face is that there is still an information vacuum. No one has seen what the default products actually look like yet, and Inland Revenue still hasn’t completed some of the forms.
The good news here is that IRD plans to send enrollment packs out in late May. I know many people are looking forward to seeing these.
I understand from the default providers perspective that they are not allowed to promote their schemes until they are signed off by both the IRD and the Government Actuary.
From what I can see the GA –as he is called in the industry – is one of the most important and powerful people in the whole KiwiSaver chain, yet his office only has something like four staff. Geez that seems like one way to overwork people and slow progress down.
The conference was well-worth attending and I will have plenty more to comment on over coming days and weeks on KiwiSaver implementation.
Keep an eye out for future posts (best way to get them is to sign up to the KiwiSaver.net.nz mailing list). Likewise I am interested in any questions you may have and would like answered. Also would love to find out how others are going with implementation. Use the comments box below to get in touch with us.