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Changes build on success of KiwiSaver
Hon Bill English
24 May 2012
Changes build on success of KiwiSaver
Budget 2012 makes changes that will further improve KiwiSaver and lift investor confidence, Finance Minister Bill English and Commerce Minister Craig Foss say.
“The Government is committed to lifting national savings to reduce New Zealand’s longstanding debt to overseas lenders and to deepen our capital markets, so businesses can access the funds they need to grow,” Mr English says.
“Last year’s Budget made several changes to KiwiSaver to lift national savings, including raising the level of private contributions from 1 April 2013 and reducing the amount the Government is borrowing to subsidise the scheme.
“KiwiSaver has continued to grow rapidly in the past year – about 15,000 New Zealanders a month have joined, taking total membership to about 1.9 million. In the past year, total KiwiSaver funds have grown from $9 billion to more than $12 billion.
“This year we are focused on ensuring KiwiSaver is operating as well as it can, and that investors have better information to compare fund performance, so they can make informed choices about where to invest,” Mr English says.
Budget 2012 changes include:
New
disclosure rules, from 1 April 2013, requiring fund managers
to report their performance and returns, fees and costs,
assets and portfolio holdings, liquidity and liabilities,
and key personnel, along with any conflicts of interest, in
a standardised format on their websites.
The
Government’s review of current default provider
arrangements to ensure such arrangements are in the best
interests of investors.
Mr Foss says the new disclosure rules will ensure rigorous scrutiny of providers’ fees and performance, lifting competition and investor confidence.
“Under the changes, investors will be able to compile league tables. This will increase competition between providers, and allow investors to make direct performance comparisons.
“As a result, investors will be able to make more informed decisions. This should lead to improved industry performance and better overall returns.
“Reassessing the number, design, and investment mandate of KiwiSaver default providers will ensure these funds are operating in the best interests of 500,000 New Zealanders who haven’t actively chosen a KiwiSaver fund,” Mr Foss says.
The Government has today issued terms of reference for the KiwiSaver default provider review, and a discussion document will be released later this year.
The Government is also deferring its auto enrolment exercise for KiwiSaver, originally planned for 2014/15. The Government said it would proceed when it had sufficient surpluses to meet the forecast cost of up to $514 million over four years.
“Proceeding with auto enrolment in 2014/15 is not now possible without putting the surplus at risk,” Mr English says. “Public consultation will now be deferred until after 2012 and the policy won’t be implemented until after 2014/15.”
The KiwiSaver changes are part of a wider Government programme to build genuine national savings. This includes:
Returning
to Budget surplus in 2014/15 – one of the most significant
contributions the Government can make to increasing national
savings.
Budget 2010 changes that reduce tax on work
and savings, and increasing tax on property speculation and
spending.
Providing New Zealanders with investment
options through the sale of minority shareholdings in four
SOEs and Air New Zealand.
A commitment to resume
contributions to the New Zealand Superannuation Fund when
the Government returns to sufficient surplus and can
contribute genuine savings, rather than borrowing.
Media contact: Grant Fleming (Minister English) 021 277 9869
Rachael Kerr (Minister Foss) 021 826 189
24 May 2012
Fact sheet – KiwiSaver changes
What is changing?
New disclosure rules will require all
KiwiSaver fund managers to report their performance and
returns, fees and costs, and other key information in a
standardised format on their websites, enabling investors to
make direct performance comparisons between funds.
The Government is reviewing the rules and arrangements of
KiwiSaver default providers. There are currently six default
providers. Investors are assigned to one of these if they
don’t actively choose a fund.
The Government is
deferring an auto enrolment exercise for KiwiSaver,
originally planned for 2014/15, along with consultation on
the change. Auto enrolment involves automatically enrolling
all workers who are not already in KiwiSaver.
As a
result of Budget 2011 changes, on 1 April 2013 minimum
employee contributions will rise from 2 per cent of an
employee’s gross pay to 3 per cent.
Why are changes being made?
The Government is tightening the
disclosure rules for KiwiSaver providers to make it easier
to compare fees and overall performance. This greater
scrutiny will enable investors to make informed choices
about what fund they invest in and, over time, should lead
to better investor outcomes and overall returns.
The
Government wants to ensure the number, structure, and
investment mandates of default providers are set up to get
the best possible results for the 500,000 New Zealanders in
default funds. The review will enable any changes to be put
in place before the six current KiwiSaver default
providers’ seven-year term expires on 30 June 2014.
The Government said it would proceed with auto enrolment
when it had sufficient surpluses to pay for the up to $514
million four-year cost. Going ahead in 2014/15 is not now
possible without putting the surplus at risk.
Budget
2011 changes, which increase the rate of minimum employee
contributions from 2 per cent to 3 per cent, will lift the
level of private savings in KiwiSaver and help increase
national savings.
When will changes take effect?
The new KiwiSaver disclosure rules will take effect
on 1 April 2013.
The Ministry of Economic Development
will issue a discussion paper on the review of KiwiSaver
default providers later this year. Any changes will be
implemented ahead of 30 June 2014.
KiwiSaver auto
enrolment will proceed when there are sufficient surpluses
to pay for it.
The increase in minimum employee
KiwiSaver contributions takes effect on 1 April 2013.
Key facts
Under the new disclosure rules,
KiwiSaver providers will have to produce four quarterly
reports, and one larger annual report, for each KiwiSaver
fund they run, using a standard template.
The reports
will contain information on returns, fees and charges, asset
holdings, who manages the fund and any conflict of
interests.
Quarterly reports will be published within
10 working days from the end of each quarter, and an annual
report will be published within 90 days of the end of the
financial year. The reports will also be sent to the
Financial Markets Authority.
The review of default
providers will consider the objectives of the current
arrangements, how they have performed, and the structure,
number of default products, and their investment mandates.
Default funds currently have a conservative mandate
and are restricted to holding no less than 15 per cent and
no more than 25 per cent in growth assets.
The public
will be able to make submissions on the default provider
review after the discussion document is released later this
year.
Where can I find more information?
· More information about the new disclosure rules is available on the Ministry of Economic Development website: www.med.govt.nz/kiwisaver-disclosure.
· More information about the review of KiwiSaver default providers, including terms of reference, is also available on the Ministry of Economic Development’s website: www.med.govt.nz/kiwisaver-tor.
Terms of Reference for Review of KiwiSaver Default Providers
Context
The six current KiwiSaver default providers (AMP, ASB, AXA, OnePath, Mercer and Tower) were appointed for a seven-year term, which is due to expire on 30 June 2014.
Prior to retendering, the current arrangements will be reviewed to determine whether they remain appropriate.
Objectives
The review will set out to answer the following broad questions:
How have existing default arrangements performed from operational, administrative, regulatory and policy effectiveness perspectives?
What should be the objectives for the default provider arrangements and what are the best institutional arrangements and investment settings to deliver these objectives?
What is the optimal process for managing any transitions from existing arrangements?
Review process
Data sources:
Scan of academic research.
Existing KiwiSaver evaluation and performance information.
KiwiSaver providers (default and non-default).
Associated intermediaries.
Industry organisations and research institutes.
Relevant regulators and government agencies.
Overseas providers.
Public submissions.
Outputs:
Discussion document for public consultation released mid-to-late 2012.
Final decisions December 2012.
Consultation:
This terms of reference for the review will be published on MED’s website.
A discussion document will be released for public consultation and submissions sought. A series of open forums will be held in Auckland and Wellington to give an opportunity for stakeholders to engage with officials informally.
KiwiSaver tables – 1 April 2013 changesKiwiSaver minimum contributions before and after 1 April 2013 and savings from age 20
| Annual income $ | Current employee contribution (weekly) | From 1 April 2013 (weekly) | Total savings at 65 |
| 25,000 | $ 9.59 | $ 14.38 | $170000 |
| 30,000 | $ 11.51 | $ 17.26 | $195000 |
| 40,000 | $ 15.34 | $ 23.01 | $242500 |
| 50,000 | $ 19.18 | $ 28.77 | $292500 |
| 60,000 | $ 23.01 | $ 34.52 | $340000 |
| 70,000 | $ 26.85 | $ 40.27 | $390000 |
| 80,000 | $ 30.68 | $ 46.03 | $442500 |
| 90,000 | $ 34.52 | $ 51.78 | $492500 |
| 100,000 | $ 38.36 | $ 57.53 | $545000 |
| 110,000 | $ 42.19 | $ 63.29 | $595000 |
| 120,000 | $ 46.03 | $ 69.04 | $647500 |
| Annual income $ | Current employee contribution (weekly) | From 1 April 2013 (weekly) | Total savings at 65 |
| 25,000 | $ 9.59 | $ 14.38 | $92500 |
| 30,000 | $ 11.51 | $ 17.26 | $105000 |
| 40,000 | $ 15.34 | $ 23.01 | $127500 |
| 50,000 | $ 19.18 | $ 28.77 | $150000 |
| 60,000 | $ 23.01 | $ 34.52 | $175000 |
| 70,000 | $ 26.85 | $ 40.27 | $200000 |
| 80,000 | $ 30.68 | $ 46.03 | $225000 |
| 90,000 | $ 34.52 | $ 51.78 | $252500 |
| 100,000 | $ 38.36 | $ 57.53 | $277500 |
| 110,000 | $ 42.19 | $ 63.29 | $302500 |
| 120,000 | $ 46.03 | $ 69.04 | $330000 |
| Annual income $ | Current employee contribution (weekly) | From 1 April 2013 (weekly) | Total savings at 65 |
| 25,000 | $ 9.59 | $ 14.38 | $37500 |
| 30,000 | $ 11.51 | $ 17.26 | $42500 |
| 40,000 | $ 15.34 | $ 23.01 | $52500 |
| 50,000 | $ 19.18 | $ 28.77 | $60000 |
| 60,000 | $ 23.01 | $ 34.52 | $67500 |
| 70,000 | $ 26.85 | $ 40.27 | $77500 |
| 80,000 | $ 30.68 | $ 46.03 | $87500 |
| 90,000 | $ 34.52 | $ 51.78 | $97500 |
| 100,000 | $ 38.36 | $ 57.53 | $107500 |
| 110,000 | $ 42.19 | $ 63.29 | $117500 |
| 120,000 | $ 46.03 | $ 69.04 | $127500 |
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