KEY POINTS:
New Zealand's largest fund managers have jumped aboard the KiwiSaver scheme, with an eye on the vast sums that will accumulate if the Government introduces compulsory workplace retirement savings.
The Government yesterday announced KiwiSaver's six "default providers", the companies which will be appointed to manage savings under the
scheme unless employees choose their own manager.
Whittled down from 12 applicants, the six unsurprisingly include heavyweights AMP, AXA, ING and Tower as well as ASB, and Mercer Human Resources Consulting.
"In making our decision, ministers followed a fair, consistent and transparent process which ensured all potential default providers were assessed on an equal basis," said Commerce Minister Lianne Dalziel.
Finance Minister Michael Cullen said the appointments were subject to each company implementing necessary systems and processes required for the scheme to begin operating on July 1 next year.
However, Binu Paul, general manager of industry research firm Fundsource, said KiwiSaver was unlikely to be profitable for fund managers for some years.
"Because it's not compulsory at this stage and also because it is not compulsory for the employers to chip in, there is always an issue of economies of scale.
"For those that have decided to go down the default route, it's definitely the prospect that in the near future it's going to turn to compulsion," said Paul.
AMP Financial Services managing director Greg Camm agreed.
"I expect it will happen but who knows when," he said.
Tower NZ chief executive Rob Flannagan said KiwiSaver would likely be slow getting off the ground "in the sense of building to meaningful investments".
"It's a question of how many people take it up which will determine which direction it goes," he said.
"You would have to say it's probably the first step into compulsory superannuation over the long term."
A spokesman for Cullen said compulsion was "not on the radar screen" at present.
"Let's give KiwiSaver a chance to fly and see what the take-up rates are like."
However, Camm said take-up rates for KiwiSaver should not be the only factor in considering compulsion.
"Every other Western country has either compulsory super or a tax incentive for retirement savings. New Zealand stands alone not having either of those, so it's little wonder that we have the lowest savings in the OECD and the biggest current account deficit."
Australia adopted compulsory superannuation in 1992. Its funds management industry is now worth about A$1 trillion ($1.14 trillion) and has largely bankrolled an unprecedented buy-up of New Zealand assets by Australian corporates in recent years.
SAVINGS SCHEME
* A voluntary savings scheme where employees choose to contribute 4 or 8 per cent of their gross salary.
* When they start a job, employees will be automatically enrolled and will have eight weeks to opt out.
* To kick-start the scheme, the government will provide a $1000 contribution and pay some fees to improve the returns.
* Employer contributions of up to an equivalent of 4 per cent of the employee's gross salary will be tax exempt.
* The scheme begins on July 1 next year.
