Of the 29 submissions on the government review of the KiwiSaver default provider regime very few, if any, deviate from party lines.

As you might expect, most submissions argue the toss from their own commercial perspective. A good example is the NZX proposal "that an appropriate proportion of the increased investment in equities should be directed to New Zealand equities".

Elsewhere, the NZX Smartshares subsidiary (New Zealand's only provider of exchange-traded funds - or ETFs) calls for default funds to invest via... ETFs.

Most of the current default providers also concur that the number (and identity) of the default providers is just about right.


An interesting exception here is AMP (the proud owner of two default KiwiSaver schemes), which proposes that default status should be opened up to all "schemes and providers [that] meet minimum standards rather than be restricted to a subset of providers".

This is not as generous a concession as it might sound. As AMP notes further on: "This commercial rationale, along with the compliance requirements, will drive a natural limit to the number of default schemes."

There is less agreement, though, on the broader question of whether the investment mandate of the default schemes should be altered from the existing conservative bias to a life-cycle fund approach. Life-cycle funds automatically adjust the asset mix of investors from more- to less-risky over time.

I would say a slim majority of submissions favour the life-cycle model for default KiwiSaver schemes but there's division even among the current six default providers. Tower, Mercer and OnePath all favour life-cycle while ASB and AMP (including Axa) vote for the staus quo.

AMP, however, does note that despite the relative success of conservative investment strategies over "the environment created by the GFC" there is a looming problem that the bond-heavy default schemes are up against.

"There is a risk that as this environment unwinds through market conditions improving then the investment outcome for investors with overweight allocation to bonds, including newly allocated default members, is likely to be negative and difficult for them to understand in a conservative fund," the AMP submission says.

Others, including OnePath, also express this concern.

According to another submission by Andrew Blackler, the former head of NZ fixed interest at Westpac's investment subsidiary BT Funds, conservative KiwiSaver investors are also being short-changed by the current upside-down nature of New Zealand cash markets.

Blackler, who resigned from BT late last year, points out that wholesale investors (which includes KiwiSaver funds) are forced to accept lower cash rates than retail clients can get on term deposits - mainly due to Reserve Bank of New Zealand "core funding" rules for banks that give weight to theoretically more stable retail deposits.

Given that this state of affairs could continue for "some time, if not indefinitely", Blackler argues banks should be able to treat KiwiSaver cash deposits as 'retail'.

Presumably, KiwiSavers could then get a better deal on their cash but it would also ease pressure on banks to attract retail deposits and hence those retail rates would head down.