Bill English, Craig Foss
17 October, 2013
KiwiSaver default provider review completed
KiwiSaver default providers will retain the conservative investment approach because that is the most appropriate choice when the Government is taking decisions about other people’s private savings, Finance Minister Bill English and Commerce Minister Craig Foss say.
The ministers today announced a raft of decisions about KiwiSaver default provider arrangements following a comprehensive review which was agreed when KiwiSaver was launched in 2007.
“With 2.1 million members and about $15 billion of funds under management,KiwiSaver has quickly established itself as a key part of New Zealanders’ retirement savings,” Mr English says.
“The default provider regime is an important part of that scheme, with about 465,000 New Zealanders remaining in the default fund to which they were allocated, and those default funds currently managing about $3.4 billion on behalf of New Zealand savers.
“It is vital we continue to build on KiwiSaver’s contribution to developing a savings culture and lifting New Zealanders’ confidence in our financial sector,” Mr English says.
Mr Foss says the decisions outlined today will form the basis of the upcoming tender process for default providers for the next seven-year term beginning in July 2014. Those providers will be appointed by April 2014.
A competitive tender process will begin later this year. The tender selection criteria will be the same as it was in 2006, with one additional requirement which is that prospective default providers will have to demonstrate how they will offer investor education to encourage default members to actively choose which fund they should be in.
KiwiSaver default provider review decisions:
- Conservative investment approach remains.
- The basic criteria for selecting default providers will remain: investment capability, corporate strength, administrative capability, track record and stability.
- New criteria will require providers to offer investor education to default members.
- If a current default provider is not reappointed, their default members will be asked if they want to stay with that provider. It is expected that if they do not opt to stay, they will be reallocated evenly across the appointed default providers.
- The Government does not expect to appoint any more than ten default providers.
“The aim of default funds is to provide stable returns and build confidence in KiwiSaver while members actively consider the best fund for their individual circumstances,” Mr English says.
“The Government believes it should take a risk-averse approach, as the default provider arrangement is making initial investment decisions on behalf of others. The conservative option, with no less than 15 per cent and no more than 25 per cent of members’ assets in growth assets, is most consistent with this,” Mr English says.
Mr Foss says it is important that individual KiwiSaver members actively decide how their KiwiSaver funds are invested and the new requirements will help them to do this. Many New Zealanders have already moved from a default to a non-default fund.
“In addition, the new KiwiSaver disclosure rules which came into force on 1 July 2013 will require providers to publish simple and consistent information which will help encourage KiwiSaver members to compare KiwiSaver schemes and make an active choice,” Mr Foss says.
Questions and answers and Cabinet papers are available here: www.med.govt.nz/business/business-law/current-business-law-work/changes-to-kiwisaver/default-provider-arrangements
Ministers will release the Request for Proposal for the second-term selection round in coming weeks.