[ Last Updated 2 April 2007 ]
Short Description
The six companies selected as KiwiSaver default providers were officially signed up for the job at Parliament today by Finance Minister Michael Cullen and Commerce Minister Lianne Dalziel.
Author
Hon Michael Cullen, Minister of Finance; Hon Lianne Dalziel, Minister of Commerce
The six companies selected as KiwiSaver default providers were officially signed up for the job at Parliament today by Finance Minister Michael Cullen and Commerce Minister Lianne Dalziel.
"Today's signing underlines the excellent progress we are making to ensure KiwiSaver takes off as planned on 1 July," said Dr Cullen
"KiwiSaver, the new way to save at work, makes the job of saving for your retirement easier because saving starts when you start working
"People who join KiwiSaver without choosing a preferred savings scheme will be automatically allocated to one of the selected default providers.
"The default providers are an important part of KiwiSaver as they help people who want to save, but who find it difficult to start. The default providers help them maintain savings momentum while leaving their choices open for the future."
Commerce Minister Lianne Dalziel said the six default providers were selected in a competitive tender process and underwent a detailed evaluation to ensure they met a number of stringent criteria including their: security and organisational credibility; organisational capability; proposed scheme design; administration capability; competitive fee levels; and investment capacity and capability.
"We wanted to make sure KiwiSavers who are allocated to one of the default providers will be looked after by a fund manager of the highest quality. This is important to maintain the confidence of employees in KiwiSaver."
Dr Cullen said the risk profile for the default investment product was conservative and offered a lower degree of risk, while providing moderate returns over the longer term.
"We felt this was right for people who did not feel confident about choosing their savings products. However, the default providers, as well as other firms who will also offer KiwiSaver products, will offer a range of investment options which members can switch to at any time if they feel it would suit them better," Dr Cullen said.
"KiwiSaver shows the Labour-led government dealing with a key challenge. We have a savings problem. The Reserve Bank estimates that for every $1 an average household earns, it currently spends around $1.15.
"We are rising to the challenge by making it easy for people to increase their level of savings and build the assets they need to secure their futures."
The six providers selected will be ready to accept members when the scheme comes into operation on July 1, 2007. They are:
- ASB Group Investments Limited
- AMP Services (NZ) Limited
- ING (NZ) Limited
- Mercer Human Resource Consulting Limited
- National Mutual Corporate Superannuation Services Limited (trading as AXA New Zealand) and
- TOWER Employee Benefits Limited.
Background
KiwiSaver is a voluntary scheme where employees elect to contribute 4 or 8 per cent of their gross salary. Those starting a new job will be automatically enrolled and will have eight weeks to opt out. To kick-start the scheme the government is providing a $1000 contribution and paying some scheme fees in order to improve the returns for savers. Employer contributions to KiwiSaver schemes will be exempt from tax, subject to a cap of the lesser of the employee's contribution or 4 per cent of their gross salary or wages.
The official KiwiSaver website www.kiwisaver.govt.nz provides full information on the scheme.
Independent financial information about retirement saving is available on www.sorted.org.nz
KiwiSaver Default Provider – Questions and Answers
How did you choose the default providers?
An open competitive tender process was undertaken to select the companies to be appointed as default providers, where Ministers were assisted by advice from independent external experts who carried out detailed evaluation of potential providers.
The companies to be appointed as default providers are required to meet stringent criteria so as to ensure that they are able to offer the kinds of retirement savings options New Zealanders want and need.
What criteria were used?
The default providers have been selected on a number of criteria, including their:
- Security and organisational credibility;
- Organisational capability;
- Proposed design of the providers Default KiwiSaver Scheme;
- Administration capability;
- Competitive fee levels; and
- Investment capacity/capability.
Do people have to join a default provider KiwiSaver scheme?
No, people do not have to join a default provider KiwiSaver scheme.
Employees starting a new job on or after 1 July 2007 will be automatically enrolled in KiwiSaver with the ability to opt-out. Those employees who do not opt out will be allocated to a KiwiSaver scheme in one of three ways:
- the member can actively choose a KiwiSaver scheme; or
- if no KiwiSaver scheme is chosen by the member, then they will be allocated to their employer’s preferred KiwiSaver scheme if they have one; or
- if the employer has not chosen a preferred KiwiSaver scheme, then the member will be automatically allocated to a default KiwiSaver scheme by Inland Revenue.
All KiwiSaver schemes will be run by the private sector regulated similarly to existing registered superannuation schemes and governed by trust deeds. Any provider, not just default providers, will be able to offer KiwiSaver schemes that meet the requirements of the KiwiSaver Act.
Are default providers better than other KiwiSaver scheme providers?
The providers appointed as default providers were selected from amongst those who submitted a formal proposal in the competitive tender process and subsequently went through a detailed evaluation process. Any provider, not just default providers, will be able to offer KiwiSaver schemes that meet the requirements of the KiwiSaver Act and not all potential providers of KiwiSaver schemes will have chosen to seek selection as default providers.
The range of products offered by other KiwiSaver schemes may differ from those offered by default providers. Members will be able to actively choose a KiwiSaver scheme that best meets their specific needs.
How will the default providers invest their members' savings?
At any time a person can actively choose the KiwiSaver scheme and investment product that best suits their needs and investment risk and return profile. However, where a person does not choose a KiwiSaver scheme and an investment product and there is no employer preferred KiwiSaver Scheme, Inland Revenue will randomly allocate them to one of the six default providers.
The default provider will invest the contributions in a designated default investment product with a conservative investment risk profile within their default KiwiSaver scheme.
The default providers will offer in addition to the default investment product a range of other investment products within the default KiwiSaver scheme and a member will at any time be able to switch to another investment product which suits them.
A member will also be able to transfer to another KiwiSaver scheme at any time.
What is meant by conservative investment risk profile?
The risk profile is designed to provide a lower degree of risk, while providing moderate returns over the longer term.
A conservative investment product typically has a higher proportion of the total assets allocated to what are commonly referred to as "income earning" assets, such as cash and fixed interest investments, with a smaller proportion allocated to what are commonly referred to as "growth" assets such as shares and property.
The default investment product must contain "growth" assets limited within the range of 15 per cent to 25 per cent of total assets. The default providers are required to comply with this requirement on an ongoing basis.
Why has a conservative risk profile been chosen for the default investment product?
In arriving at a preferred risk and return profile for the default investment product, it was necessary to balance the general profile of a longer-term retirement savings investor against factors, such as the assumed new investor nature of a sub-set of members of the default investment product and a sub-set of investors who will be using this product as a mechanism for saving for a first home.
It is considered that a conservative investment risk profile is, on balance, most appropriate for assets making up the default investment product.
The default providers will offer in addition to the default investment product a range of other investment products within the default KiwiSaver scheme and a member will at any time be able to switch to another investment product which suits them.