KiwiSaver move 'knee-jerk reaction'

The Huljich KiwiSaver scheme funding controversy has turned the spotlight on account management. Photo / Brett Phibbs

The Minister of Commerce's decision to fast track KiwiSaver regulation is a "knee-jerk reaction", says the chairman of a superannuation industry body.

Following concerns over the management of KiwiSaver funds, Commerce Minister Simon Power yesterday asked officials to work quickly to ensure the integrity of the the $4.88 billion invested in the scheme by 1.3 million New Zealanders

David Ireland, chairman of Workplace Savings, said the reaction to the Huljich debacle could "drive out" some providers, forcing costs up for those that remained in the market.

"In terms of the proposals we welcome the debate, raising issues and checking we have got the best system we can afford to have - but it is a question of affordability.

"The providers out there are at risk of drowning under a deluge of regulation. If it costs more to comply with the regulations it will impact on the amount people can save," said Ireland.

He said the proposals to increase the reporting to quarterly for non-default schemes could drive some out of the market, and less innovation would take place.

"It forces some providers at the margins to look at their viability," Ireland said.

He said consolidation of the market was expected but it would be a shame for regulation to force it to happen rather than actual business drivers.

Ireland said default providers had to give additional information, but were in a privileged position where they automatically got new investors whereas others schemes did not.

"This is a knee-jerk reaction to a particular anomaly [Huljich]."

He also questioned the need for more disclosure on the performance and assets in the schemes.

"KiwiSaver is a long-term saving scheme. If you are reporting quarterly do you want people to have a knee-jerk reaction to the performance in one quarter?"

However, he said there could be room for including KiwiSaver trustees in a new bill expected to go to Parliament in the next few weeks designed to license trustees of finance companies.

At the moment the bill does not cover trustees of superannuation schemes including KiwiSaver, but Ireland said it could be expanded to cover KiwiSaver as most of the trustees would already be affected by the changes.

Vance Arkinstall, chief executive of the Investment Savings and Insurance Association, which also represents KiwiSaver providers, said it was time to toughen up.

"We do have to take the management of money much more seriously."

Arkinstall said the Government was ploughing thousands of taxpayer dollars into KiwiSaver and if providers wanted to be involved they had to follow best practice standards.

"I think it is right and proper that all providers should meet the same levels."

Financial writer Mary Holm said the KiwiSaver scheme was set up in a hurry by the Labour Government, heading towards an election, and she welcomed Power's statement that regulation should be fast tracked.

"The Government is broadly speeding up some of the recommendations of the [Capital Markets] Task Force, and the sooner the better," she said.

Holm said many New Zealanders had lost confidence in KiwiSaver, particularly in light of the Huljich affair, and she had received letters to her column from investors saying they would keep their savings in regular bank accounts from now on.

"It's a pity because they are missing out on Government money and you can get into KiwiSaver very conservatively with a bank if you want to."

She said low-risk options available with KiwiSaver were actually safer than some regular bank deposits.

David Brown Douglas, chief executive of the Trustees Corporation Association of New Zealand, said his organisation was supportive of the Government's indications yesterday.

"Any moves they make to improve the regulations will lead to improved investor confidence," he said.

Market commentator and investment manager Gareth Morgan also backed the Government's statement.

He said integrity of KiwiSaver, which had wide-ranging benefits for New Zealanders, had been tarnished by events like the Huljich debacle.

"[The Government's response] is the minimum required to demonstrate to the New Zealand public that the tricky dicky days of financial sector providers pulling the wool over the public are over," said Morgan.

ON THE FAST TRACK

Commerce Minister Simon Power has asked officials to report within four weeks on whether:

* The monitoring and reporting regime for default funds should be extended to all KiwiSaver funds.
* KiwiSaver funds should be required to regularly report to investors and the regulator on the returns, fees and assets of each fund in a consistent and comparable manner.
* To increase the ability of the regulator to supervise the trustees of KiwiSaver schemes and hold them accountable for fulfilling their obligations.
* Further powers for enforcement by regulators are necessary.