21 October 2013

Greens support public option for KiwiSaver

The Green Party sees New Zealand First’s proposal for a public option for KiwiSaver as a move in the right direction, providing that it is about providing competition to the existing private KiwiSaver funds and not proposing to nationalise them.

Speaking at the party conference in Christchurch yesterday, New Zealand First leader Winston Peters announced policy to create a state-run KiwiSaver fund.

“There is considerable common ground with our KiwiSaver policy launched in the run-up to the 2011 election,” Green Party Co-leader Russel Norman said today.

“A public fund can achieve significant fee and cost reductions through greater economies of scale. Our fund would be an optional default KiwiSaver fund.

“Under our proposal, the investment function – the back-end – would be managed by the $23 billion New Zealand Superannuation Fund while Kiwibank or the Inland Revenue Department can provide the front-end management of individual KiwiSaver accounts.

“We are going to do for superannuation, what Kiwibank has done for banking.”

The recommendation for a single default KiwiSaver provider was made by the Government appointed Savings Working Group in January 2011. The Australian Government announced similar but more sweeping changes to their superannuation industry in September 2011. The Savings Working Group estimates that a single large provider can reduce the costs of KiwiSaver by a factor of two-to-three. A 40 percent saving in costs and fees over the lifetime of a typical KiwiSaver will result in a bigger nest egg on retirement of anywhere from $23,000 to $142,000.

“A significant part of KiwiSavers’ savings gets eaten away by costs and fees, and cost of these fees in multiplied by the missed compound interest. By offering a public KiwiSaver option, we can lower costs sizably saving tens of thousands of dollars,” Dr Norman said.

“If these fee savings are reinvested, KiwiSavers’ nest eggs will be significantly higher, up to $142,000 higher in some cases ($64,000 in today’s dollars).

“This is the next, most obvious reform of KiwiSaver that is needed. A public KiwiSaver option will intensify competition in the superannuation industry driving down costs and making saving for retirement a more attractive option.

“Like Kiwibank, the public fund will be New Zealand owned, managed at arms-length, in a commercial way, responsibly invested, and run in the interests of the New Zealand economy.”

Link to Green KiwiSaver background paper:
https://www.greens.org.nz/kiwisaver                

ENDS

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