Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Govt keeps conservative mandate for default KiwiSaver funds

Government keeps conservative mandate for default KiwiSaver funds, to re-tender for providers

By Paul McBeth

Oct. 17 (BusinessDesk) - The government has settled on keeping the existing investment mandate for default KiwiSaver providers to manage funds conservatively, fending off attempts to implement a tiered approach based on members’ age.

Finance Minister Bill English and Commerce Minister Craig Foss today announced the government’s decision on the default provider review launched in November last year, keeping the conservative mandate which requires those fund to invest between 15 and 25 percent in growth assets.

Fund managers had been pressing for a ‘lifecycle’ approach for default funds, which links the level of risk to an investor’s age, claiming the conservative option meant members were missing out on about $72,000 each in foregone investment returns.

“The government believes it should take a risk-averse approach, as the default provider arrangement is making initial investment decisions on behalf of others,” English said in a statement. “The aim of default funds is to provide stable returns and build confidence in KiwiSaver while members actively consider the best fund for their individual circumstances.”

About 23 percent of the 2.1 million KiwiSaver members are in default funds with an estimated $3.5 billion under management, according to a cabinet paper published today. The paper, signed off by English and Acting Commerce Minister Steven Joyce, said the conservative option would underpin confidence in the scheme with lower volatility on returns to better preserve capital.

The government will retender for the number of default providers with a view to appoint then in April next year. They will also require default providers to offer investment education and impartial financial advice as a means to improve members’ engagement with their savings.

“This new requirement should reduce the percentage of fund members who are inappropriately in a conservative fund,” the cabinet paper said.

Foss said that will work in conjunction with new disclosure requirements on KiwiSaver funds which will align the way the schemes report their investments and returns, to make it easier for members to “make an active choice.”

The government doesn’t expect to appoint more than 10 default fund providers, whose seven-year terms will begin from July next year.

The default funds will keep their current fee settings, which are typically about 0.5 percent of a member’s account balance plus a fixed administration fee, which the government considers has played “an important role in setting the benchmark in the market for fees that are not ‘unreasonable’,” the cabinet paper said.

In a November discussion document on the default providers, Ministry of Business, Innovation and Employment officials sought a better alignment between the interests of fund managers and investors, which they said had an "inherent misalignment" between investor interests to maximise returns over the long term and fund managers, who want to increase funds under management, typically by focusing on short-term gains.

The decision comes as retirement income was put back on the agenda by the Retirement Commissioner’s draft report on superannuation last week recommending linking the age of eligibility to life expectancy, and a Financial Services Council conference calling for a sharp cut in tax on the investment schemes’ returns.

In 2010, the government-appointed Savings Working Group’s pressed for tax reform as a means to improve the nation’s savings rate, and found people under the age of 45 don’t have security for pension income because national superannuation can’t survive in its current form.

KiwiSaver was set up in 2007 as a means to address the country’s woeful savings rate, which has been undermined by an overinvestment in residential property. The country’s household savings rate is projected to be negative for the next three years, according to the Reserve Bank.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Scoop Business: RBNZ Keeps OCR At 3.5%, Signals Slower Pace Of Future Hikes

Reserve Bank governor Graeme Wheeler kept the official cash rate at 3.5 percent and signalled he won’t be as aggressive with future rate hikes as previously thought as inflation remains tamer than expected. The kiwi dollar fell to a seven-month low. More>>

ALSO:

Weather: Dry Spells Take Hold In South Island

Many areas in the South Island are tracking towards record dry spells as relatively warm, dry weather that began in mid-August continues... for some South Island places, the current period of fine weather is quite rare. More>>

ALSO:

Scoop Business: Productivity Commission To Look At Housing Land Supply

The Productivity Commission is to expand on its housing affordability report with an investigation into improving land supply and development capacity, particularly in areas with strong population growth. More>>

ALSO:

Forestry: Man Charged After 2013 Death

Levin Police have arrested and charged a man with manslaughter in relation to the death of Lincoln Kidd who was killed during a tree felling operation on 19 December 2013. More>>

ALSO:

Smells Like Justice: Dairy Company Fined Over Odour

Dairy company fined over odour Dairy supply company Open Country Dairy Limited has been convicted and fined more than $35,000 for discharging objectionable odour from its Waharoa factory at the time of last year’s ”spring flush” when milk supply was high. More>>

Scoop Business: Dairy Product Prices Decline To Lowest Since July 2012

Dairy product prices dropped to the lowest level since July 2012 in the latest GlobalDairyTrade auction, led by a slump in rennet casein and butter milk powder. More>>

ALSO:

SOE Results: TVNZ Lifts Annual Profit 25% On Flat Ad Revenue, Quits Igloo

Television New Zealand, the state-owned broadcaster, lifted annual profit 25 percent, ahead of forecast and despite a dip in advertising revenue, while quitting its stake in the pay-TV Igloo joint venture with Sky Network Television. More>>

ALSO:

Get More From Scoop

 
 
Computer Power Plus

Standards New Zealand

Standards New Zealand
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news