Inside Money:Be a tidy KiwiSaver - cleanup campaign begins

An actuarial acquaintance pointed out to me that my pre-Budget blog was overly-generous in its assessment of KiwiSaver's personal tax-effectiveness.

"Actually," the actuary said, if you factor in the investment tax collected on the $12 billion funds under management, KiwiSaver is "fiscally positive for the government".

While KiwiSaver is doing more than 'washing its face' for tax purposes, the government did demand even higher levels of hygiene for the savings scheme in its Budget announcements.

There were no surprises, however. The hold on an auto-enrol blitz was a disappointment mainly to the existing default providers, who stood to benefit most from the move. Ostensibly, the delay was attributed to our lack of current funds but it also means any, surplus-pending, auto-enrol drive will come after the review of default providers, which was reiterated in the Budget.

Both the default review and the new quarterly KiwiSaver provider disclosure provisions were hardly news but their placement in the Budget was good advertising.

The soon-to-be-reformed Ministry of Economic Development (MED) has already published its terms of reference for the default provider review, which doesn't look like a rubber-stamping exercise for the status quo.

According to the MED, the review will attack three basic questions:

• How have existing default arrangements performed from operational, administrative, regulatory and policy effectiveness perspectives?

• What should be the objectives for the default provider arrangements and what are the best institutional arrangements and investment settings to deliver these objectives?

• What is the optimal process for managing any transitions from existing arrangements?

A discussion document is due out soon with final decisions to be announced before the end of the year.
The new quarterly disclosure requirements, meanwhile, are due to kick in by April 1, 2013.

All retail KiwiSaver schemes will have to supply a templated quarterly report covering "returns, fees, assets and conflicts of interest". This should bring a welcome dose of transparency and comparability to the existing idiosyncratic mish-mash.

In a non-Budget item, the Financial Markets Authority (FMA), which regulates the KiwiSaver Sector, also tweaked the rules last week, publishing a guidance note on performance fees.

While only two existing KiwiSaver providers, Fisher Funds and Milford (the now-defunct Huljich scheme also indulged in the practice), currently charge direct performance fees the issue deserved greater clarity. Read the industry submissions to enjoy the full debate but the upshot was providers now have to justify and explain their performance fees to a much greater degree.

Just prior to the FMA announcement, Fisher Funds raised the benchmark performance fee for its growth fund to 'the official cash rate plus 5 per cent', substantially up from the previous measure of the 90-day bank bill rate - enough, perhaps, to keep the actuary happy.