Phil: 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

by Philip Macalister

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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Comments from our readers

On 16 November 2011 at 9:26 am Peter Barker said:

What the Greens conveniently forget is the the Superfund has only one customer and as such does not have all the ongoing management and administration costs that say OnePath with 400,000+ customers has.
This is the typical tree hugging, yoghurt knitting bullshit that the Greens churn out all the time. No business savvy, but soundbite policies that thankfully will never see the light of day because, laudable as it sounds, it will not work.

On 19 November 2011 at 5:15 pm Banker said:

Personally I would not take on the KiwiSaver. I still believe in making my own contribution with personal savings to my retirement because this plan won't help me at all. Not sure how other people see the KiwiSaver and how they believe is going to help them, but I still want to see a better policy.

Cheers!

On 20 November 2011 at 12:35 am Bruce Bisset said:

Peter: Like the way you belittle the Greens as "tree-huggers" on one hand and say the idea is laudable on the other. If it's laudable, aren't they for coming up with it?

However the fact is that the current arm's-length system is privatisation of superannuation by stealth. Surely management of a country's public super scheme should be handled by government, not by some third-party which is (Kiwibank excepted) foreign-owned - and interested primarily in profits for its shareholders, not making a nice nest egg for J Kiwi.

And that is the Green's point. (With which I heartily concur.) Their detail may be fuzzy, but their intent is not.

On 5 December 2011 at 9:54 am Duncan Dunbar said:

Yes both commentaries are correct the issue is that essentially there is only one client and with that you have a much easier case load to manage instead of the thousands of shifting clients on a daily basis. My bigger concern is the ability of the Green party to thoroughly examine their financial policies they consistantly come up with "sounds good and fairy dust is sweet" but totally unrealistic on the grounds they are presenting. They have so many avenues open to them like the building code and the introduction of solar energy for all new houses which could have a subsidy clause until an agreed date, which would also increase employment in certain trades. Residential water storage if sections were capable of housing them should also be investigated.Proper harvesting of our natural resources like wind, rain and sun, especially rain which could irrigate the high country dilema in dairy farming, harvesting potential areas such as Fiordland/Westcoast would be invaluable for our farming and recreational sectors. We have been a Nation that is too scared to think big because of the failure of Rob Muldoon, however, was the failure due to more of the then slump in world prices and if they had continued we may have been reaping the success of those plans currently. We continue to be immature in the way way we look at short term and long term gains, alas that is purely a political situation with very self serving politicians who purely have self as a motive to earn a pay check.
Duncan Dunbar

On 12 December 2011 at 9:04 am Peter Barker said:

Bruce; my point is that as usual the Greens come up with something which on the face of it is laudable, but the reality is that it is so wooly that it would be impracticable. If we all lived in a cosy world where everyone cared about his fellow man it might have a chance, but.......
Secondly, it is easy to espouse policy thet you know looks good on paper and would garner votes, but when it comes to the detail, it becomes wishy washy and blurred. I stick by tree huggers.

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