David Chaplin 's Opinion

A personal finance columnist for the NZ Herald

Inside Money : Final notes from the Government Actuary

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Hold back the tears - while the Government Actuary may be no more, the Financial Markets Authority will be taking over. Photo / Thinkstock
Hold back the tears - while the Government Actuary may be no more, the Financial Markets Authority will be taking over. Photo / Thinkstock

This is almost certainly the last annual report from the Government Actuary (GA) on matters pertaining to KiwiSaver - or anything else - that will be published.

Hold back the tears, though, most of the functions and the two-and-a-half strong staff of the GA will be absorbed somewhere within the upcoming Financial Markets Authority (FMA).

However, the actual Government Actuary, David Benison, will not be coming along with his role 'disestablished' under the legislation establishing the FMA.

Despite this, or maybe because of it. Benison has made a plea for greater powers for the regulator - in particular, arguing for "unfettered access to the information held by the Inland Revenue for KiwiSaver".

Under the current set-up the GA is privy to information supplied to it by KiwiSaver schemes, yet much of the real member, employer and provider behaviour remains invisible to the GA because the IRD cannot share data that remains protected under tax law.

Benison argues that to overcome this information blockade the law needs to be amended so that KiwiSaver contributions are not considered a tax or to allow the regulator specific access to the IRD data.

It's difficult to gauge exactly what might be gained by this but later in the report there is a clue. The GA appears to be worried about the number of KiwiSaver members who limit their contributions merely to the level of the maximum government tax credit (about $1040 per year) either in their capacity as self-employed or by contributing the minimum while on a 'contributions holiday'.

"The issue which needs to be explored concerns the ability of members to minimise their own contributions to a level that they maximise the Member Tax Credit in any one year," the GA states. "This is a critical policy issue for officials to understand the relative impact of the government contributions."

I don't see the problem myself but I'm no actuary.

Elsewhere in the report the GA reiterates the need for transparency and comparability of fee reporting while also emphasising that KiwiSaver should be low-cost and a trail commission-free zone.

On that last point, however, there is a nod to the reality that KiwiSaver providers do pay trail commissions to advisers and salespeople.

"It is of note that no trail commission has been put to the 'not unreasonable fee' test and so if a trail commission is being paid, it is paid from out of the manager's fee," the GA report says.

As well the report refers to "some questionable selling practices operating in the market which are being investigated".

"It is of note that we would expect this problem to diminish with the implementation of the Financial Advisors Act when the sale of KiwiSaver becomes a Category One activity," the GA notably says in his last word on the subject.

David Chaplin

A personal finance columnist for the NZ Herald

David is a freelance journalist who has covered the financial services business on both sides of the Tasman for over 15 years. David has edited magazines and websites for the financial advice, investment and superannuation industries. Today, he contributes to various publications in Australia as well as his bi-weekly blog for the NZ Herald under the 'Inside Money' banner.

Read more by David Chaplin

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