Goldsmith: Global Symposium on Financial Capability
Hon Paul Goldsmith
Minister of Commerce and Consumer Affairs
12 October 2016
Speech at the Global Symposium on Financial Capability
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Good afternoon everyone.
Delegates, welcome to New Zealand.
I hope you have a great time at the conference and get to enjoy some leisure time in this wonderful country we call home.
This is the first time New Zealand has hosted this event and we are honoured to have you as our guests. Thank you for coming all this way.
I want to acknowledge you all, and in particular give thanks to our Retirement Commissioner, Diane Maxwell, for being a constant advocate for improving the money skills of New Zealanders.
It is rather humbling to be here and address a room full of hundreds, if not thousands, of years of collective knowledge on this very important topic.
One of the key considerations, echoed in the title of this conference, is how we - Governments - can encourage our citizens to give real consideration now to their retirement, which seems really far away?
What measures can we put in place to encourage people to consider the trade-offs between a dollar today versus a dollar tomorrow?
First, we have to acknowledge and understand the historical settings in New Zealand.
We have had universal superannuation provided to all New Zealanders on retirement for many decades, aside from a brief period of means-testing in the 1990s. It is currently set at 66% of the net average wage for a married couple from the age of 65.
In contrast to the situation in
many developed countries, it is affordable.
Currently we spend 5% of GDP on it.
Treasury predictions are that the cost will rise to 7% of GDP in 2045. We will be able to manage so long as we continue to keep control of other government spending.
It is a system that fundamentally works. New Zealand has very low levels of poverty amongst its older citizens.
Not surprisingly, that system has had an impact on our savings culture. With such a secure, universal system in place, individually we have been more modest in our retirement savings.
Many people have looked to own a home mortgage free by retirement, aiming to live off their Government superannuation.
With a slow trend over many decades of falling home ownership, the challenge is to remind people that even with universal superannuation there is every reason for people to save, in order to have more choices in retirement.
And that is why, as with many of the nations represented here today, the New Zealand government has recognised the significance of improving levels of financial capability and we have invested considerable resources to achieve it.
In July last year, I released a Government Statement on building financial capability in New Zealand.
The statement, the first of its kind in New Zealand, confirms our commitment to building financial capability across our nation.
It signalled the introduction of an all-of-government approach to financial capability which aims to build the skills of the public, and foster more engagement between New Zealanders and their retirement savings.
Greater awareness and engagement in retirement savings will lead to improved outcomes fortomorrow’s retirees.
In my opinion, there are three main things that Governments need to do to support this:
• First – Government’s must invest in research and education to promote and improve levels of financial capability.
• Second – Government’s should implement appropriate settings to encourage retirement planning. A well-established savings scheme, like our own KiwiSaver, helps to change a nation’s savings behaviour.
• Finally, Government’s need to build trust in their financial markets by supporting effective regulation.
This last aspect, around building trust in financial markets has been one of my key priorities.
The legislative changes of the past few years have been very substantive and have brought extra costs, but few would deny that we had to make improvements.
Being ranked first out of 138 economies in the recent Global Competitiveness Index for financial market development was a testament to all those officials and their hard work.
I am optimistic we are on the right track.
More participation in our financial markets leads to better avenues for companies to grow and raise capital, and provides more options for consumers and retirement fund managers.
For most New Zealanders their point of contact with the financial markets is KiwiSaver.
So let me tell you a little bit more about KiwiSaver.
In a country of 4.5 million people, around 2.6 million have invested in KiwiSaver and it now has around $34 billion in funds under management.
Next year we will celebrate its tenth birthday.
Its purpose has been to help kiwis save. Not to replace government universal superannuation, but to supplement it.
There are a few aspects of the KiwiSaver scheme that have helped its success:
• While the scheme remains voluntary, employees are automatically enrolled in the scheme when they start a new job, meaning they must ‘opt-out’ of the scheme, rather than making a conscious decision to enrol.
• Employers must make contributions for eligible investors – effectively doubling the amount being saved in many instances;
• Members receive tax credits tied to their annual contributions;
• Members can use their funds in order to purchase a first home – encouraging members to get into the habit of saving for their retirement from a younger age.
The main challenge so far, has been to engage New Zealanders in regularly thinking about their investment.
What we hope to avoid, is generations of New Zealanders retiring having not thought about their KiwiSaver for 30 years and discovering they have been in an inappropriate fund and have paid excessive fees, so that the result of their savings is less than it otherwise might have been.
One area where we have committed to make improvements is around transparency.
Last week I announced our determination to make it easier for the public to engage with their KiwiSaver Annual Statement.
It is my view KiwiSaver providers should be upfront about their fees. The current status quo around fee disclosure is good enough.
It is important to point out providers do not need to wait for regulation to provide consumers with better information on the fees they are being charged – some do already do it.
But for those that don’t, it will be a requirement.
It is an important change because transparent and easy to understand statements will help engage people in their savings.
And when people are engaged in their savings they make better decisions about their future.
The proposed changes provide for the following:
• Greater transparency around what fees investors are paying, including a dollar value for total fees;
• Projections for the lump sum and resulting annual income investors are on track to achieve;
• More information about how investors’ savings are growing; and
• Prompts for investors to consider their fund choice and contribution rates and information about how they can increase their retirement income.
Once consumers are armed with this information, I believe it will be easier for them to seek suitable, personalised advice in order to make informed decisions.
As I mentioned earlier, one of the key driving factors behind our changes to financial advice regulation is a desire to improve outcomes for consumers.
It is now expected that financial market participants will put the consumer at the centre of their activities and make recommendations that are right for them, and their unique circumstances.
For financial advice, this will be achieved through the introduction of a series of statutory conduct, competency, client-care and disclosure obligations.
Any business or person providing financial advice will now be required to put the consumer first – something that has been the subject of much discussion in numerous countries in recent months.
Like we’re doing with the KiwiSaver Annual Statements, we will require disclosure to be made in a digestible manner that can be understood by anyone seeking financial advice – allowing them to make informed choices.
The final thing I wanted to touch on in my address today, is the topic of FinTech – I know this has been a subject of keen interest during the symposium so far.
In recent years we have followed FinTech development on our shores and overseas closely.
Our reforms of the regulation of financial advice in New Zealand will enable financial advice to be provided through online channels, or more commonly referred to as ‘robo-advice’.
Until now our regulatory settings had prohibited this - limiting the access to financial advice to a small number of consumers.
Regulations must be responsive to what people actually want. And a lot of people, especially younger people, do not want a half hour conversation. They want an app.
We were considered a world leader when we introduced a tailored regulatory regime for equity crowd funding and peer-to-peer (P2P) lending under the Financial Markets Conduct Act 2013, and we now have 5 peer-to-peer lenders operating.
I want to ensure that consumers in New Zealand are not left behind in the world-wide digital disruption age, and am working very carefully to ensure that our regulatory settings enable innovation.
In summary, Governments need to empower consumers in order to meet the challenges of today versus tomorrow.
Improving financial capability is a shared responsibility, and the financial services industry also has a significant role to play.
Financial service providers must ensure they are providing consumers with the information that they want to receive.
If we can achieve a well-regulated financial markets sector, in which consumers can make confident and informed decisions, then we will surely improve retirement outcomes.
Thank you for the opportunity to address you all this afternoon.