[The Wrap] National's KiwiSaver policy is nuts

KiwiSaver is 16 years old and about to crack $100 billion in funds under management. Most people in the industry think it’s time for a refurb. But can you trust the politicians to get it right.

If you take National’s two recent announcements the answer is a resounding no. First it proposed allowing tenants to use KiwiSaver to pay their bond.

This week it says it will allow splitting KiwiSaver so members can use multiple funds.

You can see my thoughts on the former announcement in my ASSET editorial.

This week’s announcement shows National doesn’t understand KiwiSaver and its policy is a solution looking for a problem.

Currently, members can split their KiwiSaver across managers. InvestNow, Consilium, Sharesis and Craigs all have schemes where members can use multiple managers.

There are deeper problems to this announcement.

One of the most concerning is that the potential extra risk members may end up taking by mixing and matching managers is potentially high.

Sharesis co-founder Leighton Roberts made some interesting comments saying market research shows that engagement with KiwiSaver is lacking.

“A lot of people are in the wrong funds and they don't know that it's an investment – they think it's a savings vehicle because of the name. But for a lot of people, particularly younger people, KiwiSaver is the biggest asset they have.”

I question the argument around concentration risk as splitting providers is something that arguably appeals to those with higher balances. Many advisers would suggest to these clients that instead of putting all their funds into KiwiSaver, which is locked in until age 65, they are better to use non-KiwiSaver funds to complement their portfolio.

As others have pointed out there are questions around the extra fees a member may end up paying if they used multiple schemes.

Then there Is the question of how to administer such a change and how members would get a consolidated picture of their investments.

If there is a plus to this policy it is that people splitting their KiwiSaver should be using advisers to make sure the decisions they make are robust.

Arguably the biggest issue for KiwiSaver is contribution rates. They are far too low and far too many members are not contributing to their scheme.

National’s policy does not address the key issues.

Labour finance minister Grant Robertson told the FSC conference this week it had planned to address KiwiSaver issues, but those plans were shelved during the Covid response. However, he says Labour had made significant changes to default providers during its term.

One of the beauties of KiwiSaver is there is a huge amount of competition amongst managers and a vast menu of offerings available to members.

National has always been a party of free enterprise and believing open markets and competition drives prices down and delivers the best solutions to customers.

It seems like it’s forgotten it’s own beliefs this week.

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