Conservative funds out for default KiwiSaver; Fossil fuels banned

Sweeping changes have been made to how default KiwiSaver funds will be run which changes to investment options and banning fossil fuels.

Sunday, March 1st 2020, 8:09AM

The government has released the review of default KiwiSaver schemes and decided that instead of being managed conservatively, they will be required to be balanced funds.

Also default funds will not be allowed to invest in fossil fuels to help New Zealand transition to a low emission economy next year.

Finance Minister Grant Robertson and Commerce and Consumer Affairs Minister Kris Faafoi said their announcement reflects the Government's commitment to addressing climate change.

The end to investment in fossil fuels applies to the 690,000 people who were automatically enrolled in a default KiwiSaver fund when they started a new job. It does not apply to KiwiSaver providers outside the Government's default providers.

Pathfinder chief executive John Berry welcomes the changes and says the firm's Caresaver KiwiSaver scheme is the only fossil fuel-free one in the market.

He says the change will benefit both savers and the planet. It also highlights the existential threat of climate change.

"The government’s directive announced today will encourage positive change and the shift to renewables. As more funds globally move to exclude fossil fuel companies, oil and gas companies find it harder to raise the capital they need to fund exploration, development and production. It will also protect investors in default funds from the poor returns from oil and coal companies, which have dragged on global investment returns for at least the last five years."

“Most fund managers have been slow to recognise the risk of climate change and the impact it is having – and will continue to have – on investment returns. Climate change is both a massive investment risk and investment opportunity."

“CareSaver believes its approach to monitoring environmental, social and governance (ESG) factors represents the future of successful investment. Fund managers that ignore the significance of risk of climate change risk are likely to underperform, or worse, sustain investment losses in the years ahead.”

“We welcome and are pleasantly surprised by this bold move by the government to join us in this position of leadership in New Zealand. We believe it is a smart and forward-looking approach for both investors and the planet,” Berry said.The fossil fuel exclusion follows a similar exclusion on investment in companies involved in illegal weapons like cluster munitions and anti-personnel landmines, which has been in place for several years.

MAKING MEMBERS BETTER OFF

Robertson says the changes to default settings ware intended to make a real difference to people's financial wellbeing in retirement.

The terms of the nine default providers expire in June next year, when the Government will appoint new providers. The changes are due to come into effect from July next year.

"We're also focusing on ensuring New Zealanders get greater value for money from their fees, which we know can make a big difference in the amount of money people have for their retirement. So the fees each provider charges will be factored into the providers we select during the procurement process," Robertson said.

KEY CHANGES

Improvements the Government is making include:

changing the investment mandate from ‘conservative’ to a ‘balanced’ fund
ensuring KiwiSaver fees are simple and transparent, and using the procurement process to put pressure on fees
obligations on default providers to engage with their members to help them make informed decisions about their retirement savings
excluding investments in fossil fuels and illegal weapons. While default fund providers have in recent years divested any investments in companies involved in illegal weapons like cluster munitions and anti-personnel landmines, the changes now enshrine that requirement in default fund settings
requiring default providers to maintain a responsible investment policy that’s published on their website
transferring non-active default members of any provider that is not reappointed to one of the appointed default providers (so that these members retain the benefits of being in a default fund).

Tags: Caresaver