Greens KiwiSaver policy nice idea but...
The Green Party released its KiwiSaver policy yesterday which has all the hallmarks of a nice idea but probably not that realistic.
Monday, November 7th 2011, 7:51AM 5 Comments
The crux of the plan is to introduce a seventh default fund to the mix, which they call the Public Option, and have the money managed by the NZ Superannuation Fund. In addition to this the administration would be provided by either Kiwibank or Inland Revenue.
The details of the policy are a little scant at the moment. However it appears to be predicated on the NZ Superannuation Funds' performance and Kiwibank's track record in challenging the big Australian banks on price.
The policy sounds good and resonates with this view that KiwiSaver fees are too high. Co-leader Russel Norman says "KiwiSavers' nest eggs will be significantly higher, up to $142,000 higher in some cases ($64,000 in today's dollars)."
The issue of fees is certainly something which all the main political parties want to look at. Our view is that yes working out how much people pay in fees is difficult. Yes they are an important part of how much an investor really makes. And there is lots of variation.
The NZ Superannuation Fund does a good job in managing money but one has to remember it has a mandate to die for. It essentially has one client and it has a long-term investment strategy where there are no draw downs for years. Commercial fund managers on the other hand have to deal with day-to-day redemptions and new clients. Investors are chasing short term returns and will move managers or investments if they aren't delivered.
If people were to get access to the NZ Superannuation managers then they should also be made to lock their money in for a long period of time. Maybe even until they are 65.
Otherwise the managers won't be able to continue with the strategy they use.
Having Kiwibank or IRD managing the administration is an interesting one too. Kiwibank already has is on scheme and probably isn't that interested in being administrators and earning discounted fees. Likewise there is an emerging view IRD should be doing more with KiwiSaver. As we reported here there is a view it should manage hardship requests.
Such a move certainly takes IRD away from its core job of managing the tax system.
You can read Philip's blog here: http://www.goodreturns.co.nz/blog/
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