Strong response expected to KiwiSaver default review: Govt

Government officials expected the discussion paper proposing reform of the KiwiSaver default fund arrangement would provoke "full and rigorous debate", a cabinet paper reveals.

Friday, September 20th 2019, 6:00AM

The Ministry of Business, Innovation and Employment has released the document issued to cabinet ahead of the discussion document's launch.

It said that the wide-ranging questions asked of the KiwiSaver scheme could be expected to spark a reaction.

"In terms of mitigating the risk of strong stakeholder responses, the discussion paper makes it clear that we are consulting on all options and invites submitters to put forward options not set out in the discussion paper."

The paper sets out options for change including the possibility of default funds taking "life stages" settings, requiring a specific level of investment in New Zealand capital markets, and an increased focus on fees.

One of the key issues that has caused that predicted concern is the suggestion that default providers should have to meet ethical obligations.

“One view is that there is public interest in responsible investment, and that it is appropriate for the Government to change the default provider settings to achieve this. Several stakeholders have said that the current requirements for responsible investing are not robust enough, and that there should be stricter responsible investment criteria in the default provider settings. This could function as a lever to promote responsible investing across all KiwiSaver funds, and indeed, across other investment funds.”

Its consultation paper said there was evidence that KiwiSaver members would support this – a survey showed 72% of New Zealanders expect their investments to be made responsibly and ethically.

Options proposed included requiring mandatory exclusions of certain industries or companies or a standard disclosure format for responsible investment.

But Alister Van Der Maas, managing director of Russell Investments in New Zealand, said ethics were a personal belief.

“If you’re an individual it’s easy but if you’re a super scheme or a KiwiSaver provider offering a product how do you define ethics?

He said there was a lot of variation in the approach of default funds and if people had not made an active choice to be in a particular fund they could end up with a quite different outcome just by virtue of the scheme they had ended up in.

Implementing responsible investment requirements would add further variability.

“My concern is that everyone will define it differently and default members could end up with different outcomes.”

It was hard to say how a responsible investment slant would affect performance, he said. Research had shown that portfolios could exclude about 2% of the MSCI before it affected returns – a level that was reached for most KiwiSaver members already by existing screens, he said.

Tobacco as an industry had outperformed over the past 20 years and only fell back in the last two or three, he said. “Taking it out two years ago was not a bad decision but if you took it out 10 years ago it possibly could have been.”

Simplicity founder Sam Stubbs said there was a lot of virtue signalling in ethical investment, “Where do you draw the line? It’s hard to objectively say what is ethical … Is Facebook a virtuous company or a vice company? We are a not-for-profit trying to be as ethical as we can and I’ve got to be honest and say that it is a minefield of subjective opinion.”

But he said it was “almost certain” that returns would be the same with a responsible or ethical approach.

David Boyle, head of sales at Mint Asset Management agreed it was hard to define ethical investment. “But to say it’s too hard is a bit of a cop-out as well.”

He said consumer expectations should become clearer as more people became aware of the issue.

Tags: Alister Van Der Maas David Boyle ESG ethics fees KiwiSaver MBIE Mint Asset Management responsible investing Russell Investments Sam Stubbs Simplicity