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The arrangements applying to KiwiSaver default funds are being reviewed with a view to improving the returns to members.
Submissions on the discussion paper are due by 18 September.
Default providers are appointed by the Minister of Commerce and Consumer Affairs for a fixed term, which will expire on 30 June 2021. The nine current providers are AMP, ANZ, ASB, BNZ, BT Funds (Westpac), Fisher Funds, Booster, Kiwi Wealth (Kiwibank) and Mercer.
Currently default funds are required to follow a conservative investment mandate. The review asks whether other options should be available – life stages, balanced and growth.
Default funds charge a percentage-based fee, sometimes with an additional monthly fee (plus other minor fees and expenses). Review options are a government-set fee; a two-stage assessment of fees in procurement; percentage-based fees which would reduce as the funds under management increase; no fees for under 18 year olds; no fees for low balances; and no annual fees.
Number of providers
The review is wanting feedback on the costs and benefits of reducing the number of default providers.
The options are to either require the mandatory exclusion of certain industries or companies, or to require standard disclosure for ethical investment.
Capital market development
Two options on the table are to ensure that default funds contribute to New Zealand capital markets development:
- Option 1 would require that parts of the management be New Zealand based
- Option 2 would introduce a requirement that a small percentage of default funds be directed to a particular area of investment – e.g., early stage New Zealand businesses.
The review is asking whether credit should be given for investing in local, small investments but we would be surprised if this idea is supported because it would be inconsistent with a customer-centric model and the statutory obligation on fund managers to act in investors’ best interests, if these investments do not stand on their own merit.
Transferring default members to new default providers
What happens if existing default providers are not reappointed? Options are to allow them to keep their default members or to allocate those members among the other default providers.
If you would like more information or assistance with making a submission, please get in touch with one of the listed contacts.