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Changes build on success of KiwiSaver

Hon Bill English

24 May 2012

Changes build on success of KiwiSaver

Budget 2012 makes changes that will further improve KiwiSaver and lift investor confidence, Finance Minister Bill English and Commerce Minister Craig Foss say.

“The Government is committed to lifting national savings to reduce New Zealand’s longstanding debt to overseas lenders and to deepen our capital markets, so businesses can access the funds they need to grow,” Mr English says.

“Last year’s Budget made several changes to KiwiSaver to lift national savings, including raising the level of private contributions from 1 April 2013 and reducing the amount the Government is borrowing to subsidise the scheme.

“KiwiSaver has continued to grow rapidly in the past year – about 15,000 New Zealanders a month have joined, taking total membership to about 1.9 million. In the past year, total KiwiSaver funds have grown from $9 billion to more than $12 billion.

“This year we are focused on ensuring KiwiSaver is operating as well as it can, and that investors have better information to compare fund performance, so they can make informed choices about where to invest,” Mr English says.

Budget 2012 changes include:

New disclosure rules, from 1 April 2013, requiring fund managers to report their performance and returns, fees and costs, assets and portfolio holdings, liquidity and liabilities, and key personnel, along with any conflicts of interest, in a standardised format on their websites.
The Government’s review of current default provider arrangements to ensure such arrangements are in the best interests of investors.

Mr Foss says the new disclosure rules will ensure rigorous scrutiny of providers’ fees and performance, lifting competition and investor confidence.

“Under the changes, investors will be able to compile league tables. This will increase competition between providers, and allow investors to make direct performance comparisons.

“As a result, investors will be able to make more informed decisions. This should lead to improved industry performance and better overall returns.

“Reassessing the number, design, and investment mandate of KiwiSaver default providers will ensure these funds are operating in the best interests of 500,000 New Zealanders who haven’t actively chosen a KiwiSaver fund,” Mr Foss says.

The Government has today issued terms of reference for the KiwiSaver default provider review, and a discussion document will be released later this year.

The Government is also deferring its auto enrolment exercise for KiwiSaver, originally planned for 2014/15. The Government said it would proceed when it had sufficient surpluses to meet the forecast cost of up to $514 million over four years.

“Proceeding with auto enrolment in 2014/15 is not now possible without putting the surplus at risk,” Mr English says. “Public consultation will now be deferred until after 2012 and the policy won’t be implemented until after 2014/15.”

The KiwiSaver changes are part of a wider Government programme to build genuine national savings. This includes:

Returning to Budget surplus in 2014/15 – one of the most significant contributions the Government can make to increasing national savings.
Budget 2010 changes that reduce tax on work and savings, and increasing tax on property speculation and spending.
Providing New Zealanders with investment options through the sale of minority shareholdings in four SOEs and Air New Zealand.
A commitment to resume contributions to the New Zealand Superannuation Fund when the Government returns to sufficient surplus and can contribute genuine savings, rather than borrowing.

Media contact: Grant Fleming (Minister English) 021 277 9869

Rachael Kerr (Minister Foss) 021 826 189

24 May 2012

Fact sheet – KiwiSaver changes

What is changing?

New disclosure rules will require all KiwiSaver fund managers to report their performance and returns, fees and costs, and other key information in a standardised format on their websites, enabling investors to make direct performance comparisons between funds.
The Government is reviewing the rules and arrangements of KiwiSaver default providers. There are currently six default providers. Investors are assigned to one of these if they don’t actively choose a fund.
The Government is deferring an auto enrolment exercise for KiwiSaver, originally planned for 2014/15, along with consultation on the change. Auto enrolment involves automatically enrolling all workers who are not already in KiwiSaver.
As a result of Budget 2011 changes, on 1 April 2013 minimum employee contributions will rise from 2 per cent of an employee’s gross pay to 3 per cent.

Why are changes being made?

The Government is tightening the disclosure rules for KiwiSaver providers to make it easier to compare fees and overall performance. This greater scrutiny will enable investors to make informed choices about what fund they invest in and, over time, should lead to better investor outcomes and overall returns.
The Government wants to ensure the number, structure, and investment mandates of default providers are set up to get the best possible results for the 500,000 New Zealanders in default funds. The review will enable any changes to be put in place before the six current KiwiSaver default providers’ seven-year term expires on 30 June 2014.
The Government said it would proceed with auto enrolment when it had sufficient surpluses to pay for the up to $514 million four-year cost. Going ahead in 2014/15 is not now possible without putting the surplus at risk.
Budget 2011 changes, which increase the rate of minimum employee contributions from 2 per cent to 3 per cent, will lift the level of private savings in KiwiSaver and help increase national savings.

When will changes take effect?

The new KiwiSaver disclosure rules will take effect on 1 April 2013.
The Ministry of Economic Development will issue a discussion paper on the review of KiwiSaver default providers later this year. Any changes will be implemented ahead of 30 June 2014.
KiwiSaver auto enrolment will proceed when there are sufficient surpluses to pay for it.
The increase in minimum employee KiwiSaver contributions takes effect on 1 April 2013.

Key facts

Under the new disclosure rules, KiwiSaver providers will have to produce four quarterly reports, and one larger annual report, for each KiwiSaver fund they run, using a standard template.
The reports will contain information on returns, fees and charges, asset holdings, who manages the fund and any conflict of interests.
Quarterly reports will be published within 10 working days from the end of each quarter, and an annual report will be published within 90 days of the end of the financial year. The reports will also be sent to the Financial Markets Authority.
The review of default providers will consider the objectives of the current arrangements, how they have performed, and the structure, number of default products, and their investment mandates.
Default funds currently have a conservative mandate and are restricted to holding no less than 15 per cent and no more than 25 per cent in growth assets.
The public will be able to make submissions on the default provider review after the discussion document is released later this year.

Where can I find more information?

· More information about the new disclosure rules is available on the Ministry of Economic Development website: www.med.govt.nz/kiwisaver-disclosure.

· More information about the review of KiwiSaver default providers, including terms of reference, is also available on the Ministry of Economic Development’s website: www.med.govt.nz/kiwisaver-tor.

Terms of Reference for Review of KiwiSaver Default Providers

Context

The six current KiwiSaver default providers (AMP, ASB, AXA, OnePath, Mercer and Tower) were appointed for a seven-year term, which is due to expire on 30 June 2014.

Prior to retendering, the current arrangements will be reviewed to determine whether they remain appropriate.

Objectives

The review will set out to answer the following broad questions:

How have existing default arrangements performed from operational, administrative, regulatory and policy effectiveness perspectives?

What should be the objectives for the default provider arrangements and what are the best institutional arrangements and investment settings to deliver these objectives?

What is the optimal process for managing any transitions from existing arrangements?

Review process

Data sources:

Scan of academic research.

Existing KiwiSaver evaluation and performance information.

KiwiSaver providers (default and non-default).

Associated intermediaries.

Industry organisations and research institutes.

Relevant regulators and government agencies.

Overseas providers.

Public submissions.

Outputs:

Discussion document for public consultation released mid-to-late 2012.

Final decisions December 2012.

Consultation:

This terms of reference for the review will be published on MED’s website.

A discussion document will be released for public consultation and submissions sought. A series of open forums will be held in Auckland and Wellington to give an opportunity for stakeholders to engage with officials informally.

KiwiSaver tables – 1 April 2013 changesKiwiSaver minimum contributions before and after 1 April 2013 and savings from age 20

Annual income $Current employee contribution (weekly)From 1 April 2013 (weekly)Total savings at 65
25,000$ 9.59$ 14.38$170000
30,000$ 11.51$ 17.26$195000
40,000$ 15.34$ 23.01$242500
50,000$ 19.18$ 28.77$292500
60,000$ 23.01$ 34.52$340000
70,000$ 26.85$ 40.27$390000
80,000$ 30.68$ 46.03$442500
90,000$ 34.52$ 51.78$492500
100,000$ 38.36$ 57.53$545000
110,000$ 42.19$ 63.29$595000
120,000$ 46.03$ 69.04$647500
KiwiSaver minimum contributions before and after 1 April 2013 and savings from age 35
Annual income $Current employee contribution (weekly)From 1 April 2013 (weekly)Total savings at 65
25,000$ 9.59$ 14.38$92500
30,000$ 11.51$ 17.26$105000
40,000$ 15.34$ 23.01$127500
50,000$ 19.18$ 28.77$150000
60,000$ 23.01$ 34.52$175000
70,000$ 26.85$ 40.27$200000
80,000$ 30.68$ 46.03$225000
90,000$ 34.52$ 51.78$252500
100,000$ 38.36$ 57.53$277500
110,000$ 42.19$ 63.29$302500
120,000$ 46.03$ 69.04$330000
KiwiSaver minimum contributions before and after 1 April 2013 and savings from age 50
Annual income $Current employee contribution (weekly)From 1 April 2013 (weekly)Total savings at 65
25,000$ 9.59$ 14.38$37500
30,000$ 11.51$ 17.26$42500
40,000$ 15.34$ 23.01$52500
50,000$ 19.18$ 28.77$60000
60,000$ 23.01$ 34.52$67500
70,000$ 26.85$ 40.27$77500
80,000$ 30.68$ 46.03$87500
90,000$ 34.52$ 51.78$97500
100,000$ 38.36$ 57.53$107500
110,000$ 42.19$ 63.29$117500
120,000$ 46.03$ 69.04$127500
Assumptions: Assumes start date of 1 April 2013; all balances at 65 are in today's dollars and rounded to nearest $2500; funds earn a real rate of return after fees of 4%; and real wages grow at a rate of 1.5% per annum; Neither tax rates, nor the member tax credit are indexed for inflation.

ENDS


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