Savers may be better off with govt fund: Treasury

Savers would be better off in a government-run KiwiSaver scheme, new data suggests.

As part of coalition negotiations in October, the Green Party asked Treasury to do some analysis of the cost to establish and run a default public KiwiSaver fund and the potential savings benefits for average KiwiSaver members at retirement.

A scheme administered by the Guardians of NZ Superannuation was one of the Green Party’s policies this election. NZ First also campaigned on a government-run scheme, KiwiFund. NZ First MP Fletcher Tabuteau’s KiwiFund Bill has been drawn from the member’s ballot but is yet to have its first reading.

Treasury said it would cost between $200,000 and $400,000 to register the scheme, including its disclosure documents and FMA licensing.

The initial design, scoping and analysis phase would cost $1 million, it said, most of which would come from professional advisory frees. “It is possible that such upfront costs could be recovered by the fees charged to fund investors.”

Treasury said removing the requirement to make a profit would allow a reduction in fees compared to current default KiwiSaver providers. It suggested 0.3% plus $30 a year, Simplicity’s structure, was a reasonable benchmark on which to base running costs for a conservative, passive fund.

If a member joined at 18, stayed in the fund until 65 and contributed 3% of the average wage, matched by an employer’s 3%, making no withdrawals, they would have a closing balance in the government-run scheme of $965,783, Treasury said.

That was compared to $912,606 from an investment in existing default KiwiSaver conservative schemes – a difference of $53,176 or 5.5%.

The Financial Services Council said it supported initiatives to build a sustainable financial services sector.

But it was not clear what problem a government-run scheme was trying to solve.

“KiwiSaver providers operate in a competitive marketplace, and are well-regulated and of a high standard,” said chief executive Richard Klipin.

“Consequently, they enjoy a high level of both public and regulator confidence. The existing government framework for default KiwiSaver providers places a high level of accountability over the nine default KiwiSaver providers and has mechanisms for monitoring fees and investment practices. This monitoring framework covers a significant proportion of the KiwiSaver market and protects the NZ consumer.”

The Green Party also asked about the cost of introducing deposit insurance. The International  Monetary Fund suggested this year it would strengthen New Zealand’s financial safety net.

Treasury said it would cost $1.50 to $3.70 per year, per $1000 in deposits, depending on how quickly the fund’s target needed to be reached.

If it wanted the fund at target in 10 years, a depositor with $100,000 in the bank would have to pay $370 a year, assuming all the cost was passed on.  That would result in a fund big enough to cover one bank failing – although it would be liable for the failure of multiple banks.