KiwiSaver

National MP Andrew Bayly does not think allowing New Zealanders to split their KiwiSaver savings over multiple providers would be too tricky to administer.

Instead it would provide consumer choice and provide a source of funding for infrastructure development among other things, he says, of the new policy, which would allow KiwiSaver members to split contributions across up to three schemes.

But providers aren’t convinced and wonder whether such a change would add too much extra administration cost to members and the system as a whole.

Simplicity CEO Sam Stubbs says the devil will be in the details.

“If it lowers fees via competition – great. But if it’s an excuse to increase fees because of complexity, not great. So hard to know at this stage but more choice is desirable.”

Ruper Carlyon, founder and CEO of another boutique KiwiSaver provider Koura Wealth says it’s an interesting proposal.

“It would be a good thing for us because people might be more willing to diversify towards smaller players in the market with some of their KiwiSaver. If it builds trust and further develops the product, it’s a step forward.”

But he has reservations around complexity, how it would work and whether it would require a rebuild of systems at the Government end.

“The big difference between New Zealand and international markets is that we have the IRD as the central repository for all things KiwiSaver. And so when you sign up to a new provider, what would you do? Do you say you want your balance transferred,  you don't want your balance transferred or  you want X per cent transferred. Or for first-home withdrawal where would employee and employer contributions go?”

Kernel Wealth CEO Dean Anderson says one of New Zealand’s strengths is the simplicity of our systems – from a simple tax regime to a simple KiwiSaver structure administered centrally through IRD.

Both Carlyon and Anderson refer to the UK and Australia which are now dealing with the problem of investors having pockets of superannuation scattered across the market place.

“Often balances get forgotten, or aren’t regularly reviewed and you tend to see self-managed results are worse than simply getting the asset mix right and keeping costs low,” says Anderson.

Carlyon says over the past five to 10 years, both countries are going through a massive effort to consolidate pension schemes.

Both question how greater administrative complexity would result in lower fees. The upshot for Anderson is that he is indifferent to the policy, as 95% of the market will see little value and it might even add more confusion. He is skeptical on whether it will foster higher innovation, greater innovation or lower fees.

Likewise Mike Heath, general manager of InvestNow which already allows members to spread their KiwiSaver across a choice of 40 funds from 15 providers.

He says while he applauds National for identifying a long-known issue with the KiwiSaver system, much of the complexity, expense and risk would fall on the IRD. Members of more than one scheme would also lose the benefit of consolidated KiwiSaver reporting where all costs and investment returns can be viewed in context.

“The National Party emphasis on ‘flexibility and choice’ in KiwiSaver is on the money,” he says. “But the proposed policy is more likely to introduce confusion and expense when cost-effective solutions already exist.”

Sophisticated investors

Bayly, who is National’s Commerce and Consumer Affairs spokesperson, doesn't think the policy would require major changes to IRD systems. “What we’re thinking at this stage is that you would go to your employer and say you want to split your contributions and they feed it through to the IRD.

“The idea of the IRD’s new BTP [business transformation programme] is that it has full visibility around everything. They’ve now got the systems to do it. There might be some administration costs, but we don't think it's substantial and we can work through in absolute detail with them.”

He says National would probably put restrictions on the proposal. “We wouldn’t want people with a balance of $15,000 spreading their KiwiSaver unnecessarily. Obviously it’s directed at sophisticated people with larger balances and we’re talking for the next five to 10 years. “

As well as InvestNow, Kiwis can also self-select KiwiSaver funds from Consilium and Craigs Investment Partners, while Sharesies announced in May that it will allow members of its forthcoming KiwiSaver scheme to choose between six base funds.

“That’s a market solution to the existing situation,” says Bayly, “and that’s great. But people may want to choose their own options. We are going to do as much as we can to encourage KiwiSaver investors and fund managers to participate in alternative forms of investment such as expansion capital, VC, infrastructure. As balances grow people can make the choice for themselves.

Funding new infrastructure

“If you’ve got several hundred thousand, you might want to target your money in certain areas. You might have a social conscience or want to get into infrastructure.”

Bayly says only a few KiwiSaver providers have built the expertise to do alternative investments.

“Many of the larger ones for instance, like the banks, are basically passive managers. And then you’ve got the likes of say Booster, which extensively invests in wine, Sam Stubbs into housing, and Milford which has built an M&A team. So some of them have taken on the capability to do it.”

He says National wants to get third party providers involved in infrastructure and what better investors than KiwiSaver providers with their long term view.

A general review?

Sharesie’s joint founder and CEO Leighton Roberts says, “Giving more choice and control leads to a greater connection, which is what investors have told us they want, and is reflected in our self-select Kiwisaver scheme to be rolled out  in coming months.

“What National is proposing will benefit some investors, but to drive better outcomes for the significant portion of people who are really concerned about having enough money to retire in comfort, there are other policy changes to consider.

“For a step change, why not do a proper policy review of Kiwisaver that considers access, contributions, tax incentives, and compulsion.”

In a similar vein Anderson says he would rather see an ambitious policy announcement on growing KiwiSaver engagement, enhancing financial literacy in schools and tackling the key issue of raising savings rates overall.

On the topic of a general review Bayly says, KiwiSaver is so important to the fabric of New Zealand now, and we need to make it even more successful. “So, I think there'll be other elements we'll look at in time.

“We’ve already made a couple of announcements on KiwiSaver so this shouldn’t be read as the only thing we will do.”

Last month National said it would allow tertiary students to access the scheme to pay for tenancy bonds.

Bayly wouldn’t say whether there will be any more KiwiSaver announcements coming out before the election.

The National Party says if it is elected it will allow KiwiSaver members to split their savings amongst multiple providers.

National has proposed allowing KiwiSaver members to split their savings between multiple schemes.

National’s Commerce and Consumer Affairs spokesperson Andrew Bayly says the move will drive innovation, boost competition and putting downward pressure on fees.

“The money in every KiwiSaver account belongs to the person who saved it – but the current rules mean Kiwis have to have all their KiwiSaver savings with just one provider.

“That restriction is limiting investment choices, and potential returns, for savers.

“As the sector grows and matures, some KiwiSaver providers are looking to diversify their investments into different classes of assets – such as start-ups and Build-to-Rent investments. However, under the current settings, savers who want to access these new investments are forced to shift all their savings to that provider – limiting choice and competition.

“KiwiSaver plays an increasingly important role in the New Zealand investment environment, as generations of savers continue to accumulate assets. But restrictions on savers and fund managers are pushing up fees and limiting investment opportunities.

“Increasing flexibility and choice for KiwiSavers to allocate their savings across multiple providers will encourage innovation, and higher potential returns over their lifetime.

“That’s why National will give KiwiSavers the flexibility to split their savings across multiple providers to provide more choice, improve investment options and competition. Improving competition is the best way to put downward pressure on KiwiSaver fees.

National also plans to roll back the Credit Contracts and Consumer Finance Act (CCCFA) and it will repeal the recent Conduct of Financial Institutions Act (CoFI).

It says CCCFA imposes additional burdens on lenders, making credit more expensive and harder to obtain, even for basic services such as overdrafts and mortgages.

[MORE TO COME]

The Startup Advisors Council wants the Government to remove barriers impeding KiwiSavers from investing in local startups.

The recommendation is one of 25 in the council’s UpStarts 2023 report, which was commissioned by the Government to find ways to boost the sector.

Reserve Bank data shows that of the total $97b held in KiwiSaver funds at March this year, 0.18% was invested in unlisted shares.

This compares to the US where a 2022 endowments study found long-term endowment managers typically allocate 30% of funds to private equity and venture capital, and 28% allocations to public equities.

Research by international consultancy Startup Genome found New Zealand has around 2,400 startups with 58% in Auckland, 15% in Wellington, and 8% in Christchurch. The research suggests the ideal number per million people is around 1,000.

The report says New Zealand currently invests $400m a year in startups. It wants to double the number of startups over the next seven years and which it estimates will take another $2b in new funding sources and then sustained investment of $800m+ per annum after that.

The report says, “This gap suggests that New Zealanders are being deprived access to a significant growth asset class.”

It identified three main barriers to KiwiSaver providers investing in PE investment.

The first is the requirement for daily liquidity to allow KiwiSaver members to switch funds at any time, requiring managers.

Then the requirement for daily valuation. The report says to support daily liquidity means KiwiSaver managers need to be able to mark illiquid assets to market regularly. “Those managers who are investing in the sector have developed the capability to do this between the quarterly reporting cycle of the venture fund managers, but others have not.”

The third is regulatory focus on low fees is another barrier as investing in venture funds or directly into private equity increases overall fees and creates a short-term drag on returns .

The Council also said it had observed that the level of understanding of how venture capital and private equity worked – the drawdown profile, risk/return profile, the J-curve effect – was “surprisingly” immature.

“Our view is that New Zealanders should all be able to access the dynamic, high-growth investment opportunity that investment in UpStarts represents, and that these ‘blockers’ should be removed to enable capital the opportunity to flow.”

The report proposes four measures to reduce the barriers. It asks the Government to guarantee the short-term liquidity of any investments in an eligible New Zealand venture fund.

“So if a member withdraws, transfers, or triggers a fund to move outside its internal approved allocations to the venture class, the Government would stand-in as a buyer and subsequently seek to sell that interest to another fund. This would eliminate liquidity as a barrier to investment in venture funds.”

It also asks the Government to consider moving from daily liquidity to 90-day liquidity to reduce potential short-term switching volatility and provide more operating certainty for KiwiSaver funds invested in illiquid assets.

“90-day liquidity would be more consistent with how the wider savings industry operates globally.”

On fees, the Council proposes that the fee reporting regime be refined to break out the underlying asset classes that KiwiSaver managers are investing in.

“The reporting could be done in a way that celebrates investments in New Zealand illiquid assets – infrastructure, private equity, venture capital – that help grow New Zealand.

Finally it asks the government to provide guidance on asset allocation as is done by the Australian Prudential Regulatory Authority (APRA).

“Providing similar guidance to the New Zealand KiwiSaver industry will help build confidence in allocating capital to illiquid assets.”

Speaking at a conference where the report was released, Minister of Research, Science and Innovation Ayesha Verrall said the Government would take time to “carefully consider” the recommendations. Meanwhile Act said of the 25 recommendations, removing KiwiSaver barriers was the only one it would support. While National finance spokesman Andrew Bayly has already said he would look at removing KiwiSaver barriers.

The Startup Advisors Council was set up last year by Verrall. Movac founder Phil McCaw is the Chair, and the Deputy Chair is Suse Reynolds who also chairs the Angel Investors Association. Other members are Marian Straker, founder of the Ministry of Awesome; Grant Straker, founder of AI translation platform Straker Translations; Mike Carden, founder of Sonar 6; Imche Veiga, CEO of Outset Ventures; and Carl Jones, managing partner of WNT Ventures.

National Party finance and commerce spokesperson Andrew Bayly, says he did not know if KiwiSaver Scheme managers had been consulted as the initiative was led by housing spokesperson Chris Bishop.

The National election promise will allow under-30-year-olds to use KiwiSaver for tenancy bonds.

Bishop announced the intention to students at Auckland University. Under it students would be able to transfer money from their KiwiSaver to Tenancy Services and return it to their savings when the tenancy ended. They would also be able to transfer the bond to a new tenancy. There is a five year cap.

“The demand came from younger people, and particularly our young Nationals who said that for a lot of people, coming up with a bond is really difficult. And so it was a demand driven policy,” says Bayly.

He says National was concerned that people don’t withdraw money and not return it to KiwiSaver.

“That's why we're going to take that discretion out of the hands of the individual wanting to access it. The money goes straight to the Tenancy Tribunal and gets paid straight back into the KiwiSaver. No doubt it will have some administration costs for KiwiSaver providers, but they're used to withdrawing money out of KiwiSaver. It's not something that they’re not used to doing.

Asked if he thought the policy erodes the originally  intended purpose of KiwiSaver as a retirement scheme, he says that would be the case if the money could be withdrawn and not paid back.
“It can only be used this way once and it will be taken out for short periods of time.”

Kernel Wealth Management CEO Dean Anderson says he wasn’t aware of providers being asked about the policy.

He says while he hasn’t seen the full details to make a fully formed judgment, continual changes to non-critical KiwiSaver settings risk undermining the confidence in the scheme as a whole.

“It makes people question what rules changes may come next, therefore they distrust it – it only takes two minutes reading social media comments to see this.

Sharesies CEO Leighton Roberts acknowledges the difficulty of scraping together a tenancy bond.

“Rent bonds are definitely an affordability problem – but the proposed policy to let under-30s access their KiwiSaver for tenancy bonds isn’t the right solution for New Zealanders.

“KiwiSaver is a scheme to help people save for their future and by relaxing how to access this money will inevitably lead to a lower balance for retirement or buying a house.

“It’s important to note that paying for tenancy bonds isn’t ring fenced to just those under 30s, it’s impacting Kiwis of all ages.”

Simplicity CEO Sam Stubbs says it's a political decision and he doesn’t have a view whether it’s a good or bad idea.

“Clearly the youth wing of the party has said it is and the party is accommodating it. I’ll leave it up to the politicians to decide whether it would be sufficiently attractive to enough people.

“There are people who will say it’s a slippery slope. It’s one of many policies that seek to tap into KiwiSaver to make life easier. We’ve had hardships and first home withdrawals. KiwiSaver was designed as a retirement account. The more it becomes like a general saver account, the more it is deviating from its original purpose. But people shouldn’t confuse it with policies that take money out forever. It’s temporary so it’s more like a savings suspension.”

Financial Services Council CEO Richard Klipin says, it should be of great concern to all Kiwis, however, it is a great way to start a wider conversation on longer term KiwiSaver policy settings, says the Chief Executive of the Financial Services Council Richard Klipin.

“The policy does address a real concern for young Kiwis with the Financial Services Council research showing young Kiwis are feeling the heat of the rising cost of living crisis impacting the country,” Richard Klipin said.

“Our recent financial resilience research found that younger Kiwis are disproportionately affected by cost of living issues. Our recent survey found 64% of respondents, aged 37 or below, worry about money daily, weekly or monthly, more than any other age group.

“At the FSC, we are committed to helping all Kiwis with their financial confidence and wellbeing to ensure more young New Zealanders are financially stable and resilient to make sure they have more and better housing options available to them.

National would have to amend the KiwiSaver Act 2006 which currently allows early withdrawal for five reasons; first home ownership, significant financial hardship, serious illness, life shortening congenital conditions and permanent emigration.

Anderson says he would like to know when politicians will start discussing policy settings that drive engagement and contributions into KiwiSaver.

“We need to be talking about increasing contributions and getting the policy settings in place that leverages the now $100b of capital into driving better outcomes for New Zealand and all Kiwis – not building a mindset of KiwiSaver being a transactions account.”

Bayly says KiwiSaver in general needs to be “looked at”.

“We've got to look at KiwiSaver in general, because the average balance in KiwiSaver is about $28,000. And that means many New Zealanders are not saving sufficiently for retirement. And if you look at the current estimates, it used to say that [for retirement] we needed anywhere between $400 to $800,000. Since then, we've had massive inflation and now it’s more between $500,000 and $1 million.

“For a lot of its education and encouraging people to do it. A lot of people don't pay KiwiSaver for different reasons and we need to make sure that many people are taking advantage of KiwiSaver.”