Keep KiwiSaver transparent and treat it with respect
Much has been written and said about KiwiSaver since it was first tabled back in Budget 2005 – part of a package of initiatives designed to increase the level of saving by New Zealand households and to support New Zealanders in retirement. Press Release - Marc Lieberman, Chief Executive Officer, ING (NZ) Limited
Friday, July 6th 2007, 9:27AM 
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And after this year's Budget, with the introduction of tax incentives to increase the scheme's appeal, KiwiSaver has virtually taken on a life of its own.It has also produced a plethora of 'newbie' KiwiSaver providers, some of whom have mischievously taken to painting the six government-appointed 'default providers' as the villain.
As one of the appointed six, ING New Zealand takes issue with this assault.
For the record, ING is one of New Zealand's leading fund managers, managing close to NZ$9.5 billion of client funds. As a member of ING Group, we are also one of the world's largest wealth managers, with a history dating back more than 150 years.
In New Zealand, ING has an enviable record of investment performance, being named Morningstar Fund Manager of the Year in 12 out of the last 15 years. And, as the investment manager of New Zealand's largest and longest-standing retail superannuation schemes, we are proud of our extensive experience and reputation.
Following the introduction of the 'sweeteners' in Budget 2007, it is now estimated up to 50% of the eligible workforce is likely to join KiwiSaver. Little wonder in the last few months it has spawned a huge growth industry, with new scheme providers and others clamouring to attract attention.
Cheerleader of the latter is Dr Gareth Morgan, who has garnered a reputation as the bête noir of fund managers. As far back as 2004, he was assailing the industry for its alleged "conflicts of interest and misrepresentation".
We acknowledge Dr Morgan's widespread economic credentials, his engaging personality and ability to communicate in a coherent manner, and we respect him for this. Having developed a role as a 'media magnet' on finance matters, he plays a vital role in educating the wider public.
However, Dr Morgan has recently been galvanising public and media interest in the so-called "naughty behaviour" of the government-appointed KiwiSaver default providers and in particular "their hidden fees and error-ridden unit pricing practices". At the same time, he has been taking the opportunity to champion his own Gareth Morgan KiwiSaver Scheme.
I have some news for New Zealand consumers and Dr Morgan.
The KiwiSaver schemes offered by the default providers have been independently appraised by a number of industry specialists, investment leaders and media. Notwithstanding this scrutiny, the ING scheme, for one, has received no criticism. Indeed, both Consumer Magazine and the Sunday Star- Times found the ING monthly fees among the lowest of any provider. The Government Actuary has also reviewed and approved our scheme – in particular, the level and transparency of our fees.
Show us the naughty behaviour
Assertions that the default providers indulge in "naughty behaviour" in order to line their pockets at the expense of investors are simply not true. These claims are based on half-truths and outdated practices; not on today's reality.
The managed funds industry is no different from most others, in that the majority of our processes have evolved as the industry has matured. Coupled with regulation, this means that what may have been considered acceptable ten to twenty years ago is now unacceptable and certainly no longer industry 'best practice'.
Consumers can rest assured the default KiwiSaver providers and their schemes are subject to both strict regulation and Government Actuary approvals. There are no hidden fees or any of the other claims Dr Morgan has alleged.
In fact, I challenge him to back up his claims with evidence that any such behaviour exists in any of the KiwiSaver products launched by the default providers.
Unit pricing
Dr Morgan does not unit price his own funds as he claims the practice of unit pricing is full of errors, which penalises investors. This is completely erroneous as the following points illustrate:
- Unit pricing is the globally accepted best practice for managed funds.
- A unit pricing mechanism enables investors' money to be pooled to achieve greater efficiencies.
- Unit pricing allows the constantly changing interests of individual investors in an investment pool to be identified and valued regularly.
- The unit price is published regularly allowing investors to calculate their investment balances.
- As the accounts of managed funds are subject to independent audit, any errors not already identified will be found and corrected.
- ING New Zealand has never been required by an external party to retrospectively fix any unit pricing errors. We are not aware of any of our major competitors being required to do this either.
We understand the Gareth Morgan KiwiSaver Scheme will have alternative mechanisms in place to value individual interests in an investment pool. However, given the strident criticism levelled by Dr Morgan on the lack of transparency from others in the industry, we find it somewhat concerning he does not disclose how this will be established.
The interest of investors
While Dr Morgan would have us believe he's concerned for all investors, he actually appears to be very selective in the area of KiwiSaver.
For KiwiSaver default providers, there is no discrimination. If an employee does not choose a provider themselves, they are randomly allocated to one of the default providers by Inland Revenue.
However, a closer inspection of the Gareth Morgan KiwiSaver Scheme reveals it was established, and I quote, "to service serious long-term savers and to ensure they get value for money. We realise that there will be people that join KiwiSaver solely to obtain the government's $1,000 kick-start, or the first-home subsidy; or who start with good intentions but turn out to be part-time savers on contributions holidays more often than not. These folk don't interest us." In other words, young first-time employees on a low wage need not apply.
The website goes on to make it very clear the low-incomed are not his target: "We want to attract people that are willing to take KiwiSaver seriously. Our fees have been structured in the way set out below because we are not prepared to have individual members with persistently low balances being unduly subsidised by other members or ourselves".
Just to make sure, the minimum fee charged by the Gareth Morgan KiwiSaver Scheme is $200 – although this is reduced to $50 until July 2009. In order not to be impacted by this increase, clients will need to have an investment balance of $20,000 by 1 July 2009.
To reach a balance of $20,000 in two years, investors need to contribute 4% of an annual salary in the region of $180,000. How realistic is that for most of the people KiwiSaver is designed to assist?
The reality is that, where KiwiSaver is concerned, Dr Morgan is interested in less than 5% of the working population of New Zealand.
Fees – a comparison designed to deceive
Dr Morgan has published a fee comparison calculator on his website based on a series of
assumptions. Not surprisingly, the assumptions used result in his own scheme being cheaper than any other. In addition, for the record, the ING fees shown are incorrect.
Because KiwiSaver is a long-term initiative, fees should reflect what an investor will pay over the life of the scheme. On closer inspection, changing Dr Morgan's fee to the true annual minimum of $200 (rather than the $50 he uses) suddenly makes his scheme far from the cheapest.
Picking a KiwiSaver provider
ING is a firm believer in the value of good advice. We don't subscribe to 'flogging' product. Ou rmanaged funds, including KiwiSaver, are sold through selected financial advisers who are experienced, qualified and, above all, independent.
These advisers have more freedom to recommend the most appropriate products – from a number of providers – that best meet their client's needs. Until recently, we counted Dr Morgan as an independent financial adviser. However, these days, as the lead sales person for the Gareth Morgan KiwiSaver Scheme, any investment advice he gives to clients on KiwiSaver should be considered in this light.
We maintain the public needs to look at the following criteria when choosing a KiwiSaver provider:
- Size, strength and security
- Independent ratings
- Experience in superannuation and managed funds
- Stable team
- Performance/track record
- Client base
- Access to resources.
In Dr Morgan's case, we have yet to be convinced. There is no doubt Dr Morgan has been clever with his marketing strategy by trying to create doubt about the other providers; clever, but lacking transparency.
We encourage those looking for a KiwiSaver provider to make their choice based on the facts, not the rhetoric.
Marc Lieberman
Chief Executive Officer
ING (NZ) Limited
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