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Balanced 'simpler' approach, minister says

Commerce and Consumer Affairs Minister Kris Faafoi says the Government considered requiring default funds to have a life stages setting, but opted for a simpler approach instead.

Monday, March 2nd 2020, 6:01AM 8 Comments

The Government has completed its review of the default provider scheme, and is making changes that will apply to those providers who are selected to offer default schemes in the next term.

They will be required to run balanced default funds rather than conservative.

During the consultation process, some providers had lobbied for a change to a life stages approach, which reduces a person’s allocation to risk over their lifetime.

Faafoi acknowledged the suggestion but said the Government had opted to keep it simple.

He said that was still a significant change and there would be another opportunity to assess whether it was working in seven years’ time.

Providers welcome the move.

“We believe the change from conservative to balanced will be more advantageous for default members, particularly those who don’t engage with KiwiSaver for a long time and miss out on investment gains,” ASB executive general manager of private banking, wealth and insurance, Adam Boyd said.

BNZ’s general manager of wealth, Peter Forster, said it was a “gamechanger”.

Default funds will also be required to drop any investment in fossil fuels.

John Berry, chief executive of Pathfinder and KiwiSaver scheme CareSaver said it would benefit savers and the planet.

“As more funds globally move to exclude fossil fuel companies, oil and gas companies find it harder to raise the capital they need to fund exploration, development and production. It will also protect investors in default funds from the poor returns from oil and coal companies, which have dragged on global investment returns for at least the last five years.”

The Government is not implementing any set rules on fees but will require that any scheme selected as a default provider has a competitive fee structure. It will also put more requirement on default providers to educate, advise and engage with their members.

Katrina Shanks, chief executive of Financial Advie NZ, said New Zealanders should also be given better access to personalised financial advice in their workplaces.

The Government and the sector working together will help ensure the best outcomes for peoples’ financial health, wealth and wellbeing.

“It’s great that more people are making an active decision over their investment, with the Financial Markets Authority reporting 52,000 default fund members made an active decision about their investment last year – up from 28,000 the previous year – and we need to encourage that.

“Financial Advice NZ’s message is that people should look hard at the scheme they’re in – particularly if they’re in a default scheme – and compare its returns and fees with other schemes.

“This is where the value of consulting a professional financial adviser comes in – to help people make decisions that are right for them.”

Tags: ASB BNZ John Berry KiwiSaver Kris Faafoi

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Comments from our readers

On 2 March 2020 at 12:05 pm Murray Weatherston said:
Of course default fund managers are delighted with the changes.
Now they will be under no pressure to contact their very many default kiwisaver members.
Second, on the basis that their revenue R = P x Q, they will get more P because they charge higher fees for managing balanced funds than cash funds, and over time they will get more Q if indeed balanced funds outperform very conservative default funds.
Would be very interested in conjecture in what would have happened if the switch had happened in the last 3 months, and the first report those switched got showed that in the last week the equity portion was down double figures!
On the fossil fuels thing, politics trumps everything. Using Animal Farm terminology, fossil fuels bad....EVs and EPs (electric planes) good.
If fossil fuels are so bad why didn't the government go the whole hog (excuse the pun) and ban every Kiwisaver fund from having fossil fuel investments?
And why not ban internal combustion engine cars and planes while they are at it?
On 2 March 2020 at 12:38 pm w k said:
@murray: "And why not ban internal combustion engine cars and planes while they are at it?" you know well the govt can't do that, right? who do you think in parliament, including the greenies, would ride on horse back to the beehive or and row a waka to the UN?
On 2 March 2020 at 12:53 pm w k said:
the comfort of the bmers and 1st class air travel easily outweighs what the govt advocates.
On 2 March 2020 at 3:33 pm John Milner said:
I applaud the move from cash funds but believe the Government has crossed the line, telling the public what they can or cannot invest in. As Murray has said, what's next? What about Amnesty International's child labour abuse accusations for EV manufacturers? Admittedly tech stocks have long since replaced energy stocks at the top end of performers but this is a minefield the State should keep out of.
On 2 March 2020 at 8:05 pm Denis said:
@john Milner - you can invest in whatever you want. This is about the default funds i.e. the fund they put you in if you don't make a choice.
On 2 March 2020 at 9:10 pm smitty said:
There is a simple explanation really. The State views all default KS members as their own. Therefore they are free to change how they see fit. Well that's their view. Perhaps its a symptom of a MMP at work, placating the greens. There is a rather devilish degree of irony though, that the current government moves very fast to make providers exit fossil fuels for default members, but yet the uptake in EV solutions for the government fleet remains stubbornly low... Just in case anyone wonders, I dont agree with forcing the exit of fossil fuels, or the like, and this latest tinkering is another example of the incessant tinkering that goes on with KiwiSaver.
On 3 March 2020 at 6:12 am Pragmatic said:
I want to preface my comments by highlighting that these are neither pro nor against the exclusion of fossil fuels. These comments are more about the government's tinkering with your savings - something that will continue as the pot-of-gold continues to increase (and something that will ironically help to underwrite the advice industry going forward).

My concerns are that the government has set a very dangerous precedent by enforcing their social values on your retirement savings. What's next - exclusions around geographies or sectors that the government is uncomfortable with? Kiwisavings are your assets, and therefore should be directed (within reason) at your discretion.

In a similar vain, why are savers permitted to draw against their retirement savings to purchase residential property? Is this decision based on today's social consequences of not owning a home, or tomorrow's of not having enough to live off?

Whilst my next comments may sound a bit hypocritical (when following the above thoughts), strangely I'm supportive of the default shift from 'conservative' to 'balanced'. All of the studies suggest that savers will fail to meet their retirement expectations under the 'conservative' models, placing immense systemic pressures on the social structure. The test will be saver's appetite for the heightened risk that accompanies this re-categorisation.
On 3 March 2020 at 5:29 pm Denis said:
Again, you can invest in any KiwiSaver fund you like. If a provider set up a "Fossil Fuel Only" fund - you can invest in that. Fill your boots.

This is about the Default Fund requirements.

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AIA 4.55 2.55 2.69 2.79
ANZ 4.44 3.15 3.25 3.39
ANZ Special - 2.55 2.69 2.79
ASB Bank 4.45 2.55 2.69 2.79
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BNZ - Classic - 2.55 2.69 2.79
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 3.15 3.29 3.39
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CFML Loans 4.95 - - -
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China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online 2.95 1.99 2.35 2.45
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HSBC Premier 4.49 2.45 2.60 2.65
HSBC Premier LVR > 80% - - - -
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HSBC Special - - - -
ICBC 3.69 2.45 2.65 2.79
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Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.40 3.30 3.54 3.54
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 2.55 2.79 2.79
Liberty 5.69 - - -
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The Co-operative Bank - Owner Occ 4.40 2.55 2.69 2.79
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Westpac 4.59 3.15 3.29 3.39
Westpac - Offset 4.59 - - -
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Westpac Special - 2.55 2.69 2.79
Median 4.55 2.93 2.99 2.80

Last updated: 21 October 2020 8:48am

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