Fund managers budgeted to get $500 mill from Govt

Fund managers bidding for a role in the government’s KiwiSaver workplace savings scheme can go into negotiations knowing ministers are committed to subsidising management fees.

Wednesday, July 6th 2005, 7:02AM

by Rob Hosking

Official papers obtained by Good Returns show that the government is extremely keen on a fee subsidy approach to encourage people to save.

The government has allocated $500 million a year for fee subsidies. A note from Treasury officials for pre-Budget negotiations notes that Finance Minister Michael Cullen has “a preference for fee based sweeteners as a means of improving the overall return that savers will get from their investments.”

At that stage in the Budget process, ministers were considering whether to offer either the $1000 up front or a fee subsidy.

The Treasury appears to have been more keen on the $1000 up front fee because it is easier to estimate the costs. However the astonishing run of surpluses meant the government has been able to offer both sweeteners.

And Cullen has since indicated other incentives are possible.

The Kiwisaver workplace savings scheme, outlined in the Budget and shortly to get a pre-election relaunch, will automatically enrol those who change jobs into a workplace savings scheme.

Employees will be able to opt out but if they stay in a scheme they get $1000 from the government to start off their savings.

They will also get their fees subsidised, although the details of this are still to be negotiated with providers. Yet there have been warnings from the industry that costs, and therefore fees, for Kiwisaver are likely to be high.

As Good Returns reported last month, Aon Consulting says the government’s requirements allowing people to change fund managers and funds are more flexible than existing schemes, and the need for Kiwisaver to work with the new house buying scheme will also add to the costs

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

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