The Greens party released over the weekend yet another major political party’s potential variation to KiwiSaver. Its policy is to have the NZ Super Fund as an additional KiwiSaver default provider. This is an interesting idea but does have some practical challenges.
For example the existing default providers offer very conservative schemes and NZ Super Fund (due to its very different mandate) has a very growth oriented investment portfolio. So far most KiwiSavers have preferred a more conservative option than this. So the Greens would have to either look to convert default KiwiSavers to a more growth oriented fund or the NZ Super Fund would have to change its spots and offer conservative options.
The Greens policy also suggests that the NZ Super Fund could eventually become the sole default provider. This would remove a competitive element to KiwiSaver but also brings the potential risk of Government interference in the investment decisions of the KiwiSaver funds managed by the NZ Super Fund. Trying to avoid these issues was partly behind Michael Cullen coming up with the existing KiwiSaver model back in 2007.
Fees are clearly an issue for KiwiSavers and there is a real need for greater consistency of their calculation as it is currently very hard to easily compare fees between providers on an “apples with apples” basis. There is also definitely a need for greater transparency of all the fees that a KiwiSaver investor pays.
However, these issues won’t necessarily be addressed by the Greens policy. Instead they can be improved by greater regulation around disclosure of fees which is hopefully going to be addressed in upcoming legislation that then needs to be rigorously enforced by the Financial Markets Authority (FMA).
As an aside there is a potential quick win on the cost side that also has environmental benefits. This is allowing providers to email annual reports and other information to KiwiSavers and also have this information on each provider’s website rather than the current situation where this information must be mailed. Mailing out the information requires a lot of paper to be generated and is a real cost for providers. Email and website reporting is allowed for listed companies but not for KiwiSaver providers for some reason.