The big problem with KiwiSaver is that it is probably too successful and New Zealand governments are killjoys as far as successful investment and saving schemes are concerned.

The relatively youthful scheme had attracted 1,566,702 members by the end of October, compared with the Treasury's projections of 680,000 by June 2014. Consequently, the Crown's contribution has been much greater than anticipated.

The Government contributed $572 million to KiwiSaver in the June 2008 year, $839 million in the June 2009 year and $962 million in the latest full year period for a total of $2373 million (see table). The Treasury had forecast Crown KiwiSaver contributions of just $1195 million for the same three year period.

KiwiSaver has been a huge winner because it has delivered fantastic returns for individuals, mainly because of Government and employer contributions.

Up to the end of October the Crown accounted for 44.0 per cent of contributions, employers 17.7 per cent and individual KiwiSaver members 38.3 per cent.

As a result KiwiSaver members, in total, have received returns on their personal investment over the duration of the scheme of around 161 per cent, assuming nil investment returns. This is an aggregate figure and the actual result will differ for each individual depending on the size of their KiwiSaver fund, whether they were able to obtain the annual member tax credit and the after-fees, after-tax investment performance of their funds.

A reasonable percentage of KiwiSaver members should have received a total return in excess of 161 per cent on their own money since the scheme started investing on October 1, 2007. This is a fantastic outcome particularly as the domestic sharemarket, as defined by the benchmark NZX50 Gross Index, has fallen nearly 24 per cent over the same period.

The scheme is remarkably egalitarian as far as the Crown's subsidies are concerned because everyone who joins gets a $1000 kickstart regardless of their personal circumstances. In addition, the $1040 annual tax credit applies equally to all members as long as they have achieved age eligibility and have contributed at least that amount to their KiwiSaver fund during the 12 month period.

The downside is that our politicians love to fiddle with successful investment schemes and Finance Minister Bill English is particularly disposed in this regard. He has already abolished the Crown's annual contribution to the Superannuation Fund and reduced employers' contributions to KiwiSaver from 4 per cent of an employee's wage or salary to 2 per cent. Any reduction in the Crown's contribution to KiwiSaver, without a corresponding increase in contributions from somewhere else, would be another huge backward step for our savings and investment, particularly as we continue to lag well behind Australia.

The following figures illustrate the total amount of superannuation funds in Australasia and the change that has occurred since the end of the September 2007 quarter, which is when KiwiSaver funds were first invested;

* Total Australian superannuation funds have risen from A$1,174.5 billion to A$1,250.9 billion over the three year period

* Combined superannuation and KiwiSaver funds in New Zealand have increased from $22.1 billion to $25.8 billion over the same period

* Australians have total superannuation funds of $55,500 (NZ$73,000) on a per capita basis whereas we have just $5,000 per capita of superannuation and KiwiSaver funds.

A worrying sign for New Zealand is that non-KiwiSaver superannuation funds have fallen from $22.1 billion to $18.7 billion since the introduction of the new scheme. Some of this is due to negative sharemarket returns but a number of companies have replaced their traditional superannuation schemes with KiwiSaver. If KiwiSaver is made less attractive then these traditional schemes are unlikely to be re-established leaving many individuals stuck with a KiwiSaver proposition that is less attractive than when they joined. Our low level of saving is becoming increasingly obvious on our capital markets as more and more of the NZX's buying and selling activity is coming from across the Tasman. The NZX starts trading at 10am each day but there is usually minimal activity until the ASX opens at noon (NZ time). Trading on this side of the Tasman doesn't pick up speed until midday because Australian investors have been the largest buyers and sellers of a number of our biggest companies in recent months, including Fletcher Building, Telecom, Sky TV and Sky City.

This is not surprising as the total value of the ASX at the end of November was A$1365 billion ($1796 billion) compared with the NZX's measly $55 billion. Even the Irish Stock Exchange, which has been devastated by the collapse of the nation's large banks, had a total market value of €44 billion ($79 billion) at the end of November.

The KiwiSaver scheme needs to be improved, not downgraded, and one of its biggest deficiencies is the poor level of post-investment disclosure. This is covered in detail in a recent discussion paper released by the Ministry of Economic Development (MED) called "Periodic Reporting Regulations for Retail KiwiSaver Schemes".

Under current regulation KiwiSaver scheme providers are required to publish an investment statement and prospectus for the pre-investment period and post-investment an annual report and annual personalised statement. According to MED, "New Zealand is one of the few OECD countries to not prescribe ongoing disclosure requirements in relation to returns, fees and asset allocation of collective investment schemes".

The discussion paper goes on to note "The central issue surrounding current KiwiSaver reporting (such as investment statements, annual reports and annualised personalised statements) are the lack of agreed standards for the terminology employed, the categorisation of costs and the methodologies behind the calculation of fees and returns, and the format in which that information is presented".

The MED believes that substantial improvements need to be made in the following areas;

* Fees and charges. There are large inconsistencies in the way providers calculate, allocate and present fee information. The problem is exacerbated when a fund manager invests into other investment funds and the latter charges its own fees

* Fund performance and returns. There are no mandatory requirements to report investment returns on an ongoing basis. There are no standardised methods for calculating and reporting a scheme's performance, particularly whether the reported performances are gross of fees and tax.

* Asset allocation and portfolio holdings. The MED notes that there "is no requirement for schemes to disclose the asset classes their funds are invested in, and providers rarely supply this information voluntarily". In addition a survey of 16 countries by Morningstar revealed that Australia and New Zealand are the only countries that do not require the disclosure of individual portfolio holdings.

* Fund manager tenure and conflicts of interest. This covers a number of areas including situations where funds may pay higher brokerage to encourage brokers to promote their fund; disclosure of related party transactions; proxy voting is in the best interests of clients; and disclosure of the portfolio manager and his or her tenure.

KiwiSaver is a very positive innovation that needs to be nurtured and improved, not downgraded. The MED's discussion paper on the scheme is a positive step in terms of its evolution because the level of post-investment disclosure is poor and inconsistent.

Submissions on the MED's discussion paper are due by March 11, 2011.

Brian Gaynor is an executive director of Milford Asset Management and is portfolio manager of the Milford Aggressive KiwiSaver Fund.