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

 

Finance: Major Campaign To End "Gross Overtaxation Of Savings"

The campaign – which includes a special web site through which New Zealanders can e-mail their own and other MPs and party leaders – is backed by Age Concern, Consumer NZ, the Financial Services Council and the Taxpayers’ Union. More>>

ALSO:

Scoop Business: Leighton-Led WGP To Build, Manage Transmission Gully

The Wellington Gateway Partnership, led by a unit of ASX-listed Leighton Holdings, has won the $1 billion contract to build the Transmission Gully road north of Wellington. More>>

ALSO:

Gareth Morgan: The Government’s Fresh Water Policy – Revisited

Fresh water quality is the latest area to be in the sights of Gareth Morgan and his research organisation The Morgan Foundation... They found that the fresh water policy was a bit murkier than the Environment Minister let on. More>>

ALSO:

Interest Rates: RBNZ Hikes OCR To 3.5%, ‘Period Of Assessment’ Now Needed

Reserve Bank governor Graeme Wheeler raised the official cash rate as expected, while signalling a pause in rate hikes to assess the impact of moves so far this year. The kiwi dollar sank after Wheeler said its strength was “unjustified” and that the currency could have “a significant fall.” More>>

ALSO:

Fonterra: Canpac Site 'Resize' To Focus More On Paediatrics

Fonterra is looking at realigning its packing operations at Canpac, in the Waikato, to focus more on paediatric nutritionals... The proposed changes could mean around 110 roles may not be required at the site which currently employs 330. More>>

ALSO:

Scoop Business: Postie Plus Brand Gets 2nd Chance With Well-Funded Pepkor

The Postie Plus brand is getting a new lease of life after South Africa’s Pepkor bought the failed retailer’s assets out of administration and said it will use its purchasing power to reduce costs of stock and fatten margins. More>>

ALSO:

Get More From Scoop

 
 
Computer Power Plus

Standards New Zealand

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