KiwiSaver: let the bloodletting begin

The New Zealand savings industry has come down from its KiwiSaver-induced high. The mad rush of blood that resulted in the launch of 54 KiwiSaver schemes by over 30 different providers has receded - what's left behind is a few firms hooked up to a steady supply of money while the rest are in bad need of an infusion.

Most of them will be fresh out of luck. The combination of a global financial crisis and National's halving of KiwiSaver contribution rates has brought the endgame for many of the smaller providers that much closer.

As Good Returns reported this week, it looks like one of the first schemes to throw in the towel will be the Australian-owned Eosaver.

It is understood, Eosaver is in talks with a number of larger providers to take over its 3,300 or so clients, although putting a price on such a business is problematic. KiwiSaver schemes are not exactly 'sticky business' - members are free to leave at any time (even if, due to apathy, most of them won't in all but extreme circumstances).

As well most of the smaller KiwiSaver schemes are what are known politely as 'loss-making entities'. Eosaver, for example, sucked about $2 million out of its Australian owners in the last financial year, which is probably a good indicator of the minimum cost of running a KiwiSaver scheme.

Eosaver is interesting, too, because the Australian business is very experienced in running superannuation funds in its home country where the Eo Financial Services group runs a few 'industry funds'. Industry and union-based funds form a powerful part of the Australian superannuation business, a factor which is singularly missing in New Zealand.

The failure of unions and industry groups to exert much influence in the KiwiSaver world has let commercial operators and a few colourful local identities take the lead. Even the union-backed superannuation provider IRIS, which has been running a savings scheme for years, has struggled to get its KiwiSaver product off the ground.

There are plenty of KiwiSaver providers who, like Eosaver, will be 'reviewing options' right now. But it's worth noting that the closure of a scheme does not mean member funds have been lost, so don't panic if you hear your provider has just shut up shop.

 

David Chaplin

 

 

Photo/Greg Bowker