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KiwiSaver report addresses financial advice

Employee KiwiSaver information packs will contain a recommendation to seek financial advice.

Tuesday, August 22nd 2006, 6:08AM

by Rob Hosking

The recommendations is contained in the select committee report on the KiwiSaver Bill, reported back by Parliament’s finance and expenditure select committee yesterday.

The select committee has recommended that every KiwiSaver information pack should contain “a statement to the effect that financial advice should be sought when in doubt, and to clarify that employees should seek such advice from an professional adviser rather than their employer.”

The absence of any provision in the KiwiSaver legislation for provision of advice – apart from clauses explicitly stating that employers are not to be held to be financial advisers - was the source of considerable comment form within the financial advice industry.

Other changes proposed by the select committee include delaying implementation by three months, to 1 July 2007.

A number of submitters including the funds management industry and employers expressed concern about the implementation date of April 1.

The select committee did agree with arguments to change the contribution rates of 4% and 8% of gross income. Some people wanted a 2% rate and one submitter suggested adding an 8% one.

Several submissions also suggested the bill should be extended to encourage insurance cover and purchase of annuities.

The report notes there is nothing to stop people using their KiwiSaver savings to purchase annuities.

“We further note that the bill does not preclude the inclusion of insurance products. We do not, however, recommend that the minimum contribution requirements be used for insurance purposes.”

One other suggestion was inclusion of a mortgage diversion facility for all or some of the contributions.

The report says this is “feasible within the scheme itself” but that banks were less than enthusiastic about the idea.

The delay before the funds would reach banks, and the risks involved in making mortgage payments by way of a third party were the main reasons.

“We were advised that mortgage prepayments would be best handled through financial education and the contribution holiday mechanism.”

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

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