Inside Money: BNZ mortgage-linked KiwiSaver plan foiled

It is understood BNZ planned to create a mortgage offset KiwiSaver option, allowing earnings to be released early. Photo /

The Government snuck a new KiwiSaver regulation into existence last week in a move understood to be aimed at foiling an innovative marketing strategy of the yet-to-be formalised BNZ KiwiSaver scheme.

KiwiSaver Amendment Regulations (No 2) 2012 prohibits providers from linking member accounts with any financial inducements outside the scheme.

"The provision imposes a duty on the trustees or the manager of the KiwiSaver scheme (as the case may be) to ensure that the value attributable to a member's KiwiSaver accumulation is credited to the member's KiwiSaver account and not received as an external financial advantage," the regulation, due to take effect on November 1 this year, says.

Industry sources say the new rule was crafted to plug a potential leak in the system that was revealed by a BNZ proposal to link KiwiSaver accounts with mortgage payments.

If the alleged BNZ plan had been allowed through (and prior to the latest regulation it would have been legal), KiwiSaver earnings may have been released early via an offset relationship with external bank financial products - a clear breach of KiwiSaver's purpose to create long-term savings.

While no details of the BNZ proposals have been released, it is understood the bank planned to create a mortgage offset KiwiSaver option - offering reduced scheme returns in exchange for mortgage benefits.

Wording in the latest regulation seems to confirm this was the government's concern: "The regulations will prevent arrangements such as nil-return investment policies for KiwiSaver schemes that are linked to external financial advantages, such as mortgage off-set."

BNZ has lagged other major banks in the KiwiSaver market, promoting rival schemes Axa and AMP through its network. However, as I reported in March, BNZ has been working on its own KiwiSaver scheme, selecting Russell Investments as its fund manager.

It is understood wrangles over the mortgage offset plan have delayed the launch of the BNZ scheme.