KiwiSaver

For many New Zealanders KiwiSaver will be the first, low cost, easily accessible, work based savings opportunity that they have experienced, says Vance Arkinstall of ISI.
Press Release

As a result the security of KiwiSaver investment, efficiency of management and performance, must be paramount. KiwiSaver has been designed to provide maximum investor safety.

It is unfortunate that some media comment led by Gareth Morgan has galvanised public and media interest in so called “naughty behaviour” and “hidden fees” of approved KiwiSaver providers.

Claims that KiwiSaver schemes might engage in naughty behaviour are simply not true and require a response. Morgan’s comments cannot be trivialised but they do need to be considered in the context that he is a salesman for the Gareth Morgan KiwiSaver Fund which competes with all other approved providers. His independence is compromised as a result.

Consumers can take comfort that KiwiSaver schemes will be subject to strict regulation, a formal approval process, effective Securities law and rigorous monitoring.”

All KiwiSaver schemes are reviewed by the Government Actuary before approval and registration, particularly to ensure all fees and charges are both fully disclosed and are not unreasonable. It is only following this review that KiwiSaver schemes can be offered to the public.

The six default providers (AMP, AXA, ASB, ING, Mercers and TOWER) were reviewed by an independent Government-approved panel, each provider was carefully selected prior to appointment as a default provider.

All KiwiSaver schemes will be managed in accordance with a Trust Deed. Each scheme must have a “Professional Independent Trustee” who will ensure the scheme is being operated in accordance with the Trust Deed and the law (including the KiwiSaver Act, Securities Act and Securities Regulations Act and others).

As an example, the Securities Act requires full disclosure of all fees and charges and that all information supplied must not be misleading.

All KiwiSaver schemes will be required to report regularly to investors, the Government Actuary and Inland Revenue Department, so performance, management and compliance will be able to be regularly assessed by investors and Officials.

These are stringent requirements which rightly provide serious protection for investors. Within these requirements investors can be confident hidden fees and charges simply cannot occur.

Dr Morgan incorrectly claims that fund managers will be able to channel KiwiSaver funds into “Reserve Accounts”. With KiwiSaver, protection for investors extends to the requirement that all compulsory employer contributions must vest in the member immediately – they simply cannot be credited to a reserve fund.

However, reserves can arise in very specific circumstances involving unvested employer contributions in schemes where employees and employers contribute, and then only in accordance with the Trust Deed under the control of the scheme “Trustees” – Fund Managers are not able to influence or control as has been mischievously alleged.

Criticism has been directed at ‘unit pricing and pooling of funds’, possibly reflecting a lack of understanding of what is globally recognised as best practice.

Both unit pricing and pooling are accepted worldwide practices. Pooling allows cost efficiencies (ie each transaction costs less) together with asset/security diversification, which greatly benefit investors.

The accounts of managed funds will be subject to independent audit and Professional Independent Trustee review/monitoring, so errors (if they do occur) will be found and corrected.

KiwiSaver investors can be confident that their KiwiSaver scheme will operate under the most stringent regulation and approval process and with the protection of independent professional trustees.

KiwiSaver funds will be managed by an industry that has achieved an outstanding record of compliance, global best practice, transparency in all dealings and performance in the interests of investors. In short, KiwiSaver will be very safe for investors.

KiwiSaver is flexible and allows investors to switch providers if they choose.

The launch of KiwiSaver from 1 July has created huge public interest, particularly following the Budget announcement of up to $20 per week taxation credits and phased in compulsory employer contributions from 1 April 2008.

It is certain that KiwiSaver will as a result of these initiatives be a great success. Evidence can be seen in the recent surge of enquiries from individuals and employers and the amount of media comment.

Vance Arkinstall, Chief Executive
Investment Savings and Insurance Association

As the KiwiSaver infrastructure matures the range of offerings available to KiwiSaver investors will grow, and will eventually include absolute return and alternative investment products such as hedge funds.
Press Release

“A 2004 report presented to the New Zealand Superannuation Fund by Eriksen and Associates recommended an increase in the benchmark weighting to alternative assets,” said The New Zealand Absolute Return Association Inc Chairman Anthony Limbrick.

“Since then the fund has diversified into alternative investments including an allocation to hedge fund products.”

The association believes that as the KiwiSaver investor becomes more sophisticated, as has happened with Australian investors under their compulsory superannuation framework, KiwiSaver portfolios will come to resemble scaled-down versions of the New Zealand Superannuation Fund.

“It is a misconception, especially with regards to the hedge fund industry, that absolute return offerings are leveraged, and therefore highly volatile,” continued Limbrick.

Some specific products are designed to give high returns with accompanying high volatility. However, the absolute return industry is highly diverse with a wide range of return and leverage profiles to choose from.

“An allocation to absolute return products has the potential to both reduce portfolio volatility and enhance returns and we believe local investors will come to understand that premise.” says Limbrick.

He says as the absolute return industry has evolved and become accepted by institutional investors, it has become more “institutionalized”, and with that comes the expectation of higher standards with regards to risk management and regulatory compliance.

NZARA sees its role as encouraging industry “best practice” as well as educating New Zealand investors as to the benefits, and risks, of investing in absolute return investment products.

In addition the association is working to improve the regulatory environment for absolute return investment managers and promotes the New Zealand industry offshore.

NZARA is the organization representing the absolute return investment and hedge fund industry in New Zealand and has been in existence since July 2005.

Revenue Minister Peter Dunne has re-emphasized employers’ obligations under the KiwiSaver superannuation scheme, following concern expressed in a letter to the editor in today’s DominionPost.
Press Release

In the letter, the writer says he is a job seeker who was told by a reputable retailer that KiwiSaver is a voluntary scheme but the company’s staff had no spare energy to administer it and recommended the job seeker consider starting his own retirement scheme.

Dunne said, “If the facts are as outlined, then that’s not good enough.

“Employers are required to automatically enrol new employees, make deductions from their first pay day and forward those on to Inland Revenue along with PAYE, child support deductions etc.

“The employer must provide a new employee with a KiwiSaver information pack within 7 days of starting employment.

“Employers must also provide information packs to existing employees who request one. If the employee wants to opt-in to KiwiSaver the employer must start making deductions as above.”

Government will pump an estimated $3 to 4.5 billion a year into KiwiSaver members’ accounts, which is effectively a tax cut reserved only for those who can afford to take it up.
Press Release

The chief executive of the Northern Employers & Manufacturers Association Alasdair Thompson says taxpayers who cannot afford to save in the scheme, and those ineligible like those 65 or older, will be contributing towards its costs.

“Strangely no commentators have bothered to cost the scheme’s impact on Government’s accounts, Thompson said.

“If only half the eligible workforce join KiwiSaver the cost will ultimately represent $3 to $4.5 billion charge each year against Government’s accounts.

“On top of this are the costs of employing another 1200 public servants to administer the scheme, which runs into hundreds of millions of dollars.

“KiwiSaver could have been delivered far more efficiently.

We said Cullen could give personal tax cuts without inflation by directing tax cuts go into KiwiSaver (28/1/2007).

“Every income earner could have been automatically signed into the scheme.

“Instead the Government chose to launch an administration heavy money-go-round, and denied access to older people, those at work under 18 years and, in effect, low income people.

“The $1000 per person kick start will cost around $1.5 billion, and the Government’s tax credit per person of $1040 will add another $1.5 billion or more, each year.

“The compulsory contribution from business could also reduce business taxable earnings on top of the cost of the tax rebates to businesses. These will add another $1.5 billion.

“No wonder so many fund providers are scrambling to register for KiwiSaver with all those fees at stake!

“The huge costs also raise other questions, such as what will happen to taxation adjustments in future.

“And how do the costs of KiwiSaver affect the National Party’s position on tax cuts, and the ultimate reform of KiwiSaver, should they lead the next government.”