KiwiFund Bill

I move, That the KiwiFund Bill be now read a first time. I nominate the Economic Development, Science and Innovation Committee to consider the bill.

Mr Assistant Speaker, thank you for this exciting opportunity. I start by just acknowledging that I am perhaps one of the luckiest members in the House, this being my third member’s bill in three years. It is actually amazing. I do have a bad record, because the other two were in Opposition. What I’m hoping is that the third time’s a charm.

I am lucky to have the opportunity to present this bill because it is timely that it has been drawn. I put it to the House that it is the time to take stock and identify opportunity in what I happily acknowledge is actually an exciting time in the KiwiSaver lifecycle. This bill asks industry experts to consider concerns made and identify optimisations in the KiwiSaver industry. That’s simply what this bill asks for. It then asks the same experts to then consider the creation of a KiwiFund, a true Government provider, but there is no predetermination on that outcome.

So I wish to start by acknowledging how far KiwiSaver has come in its short history. By one key measure, KiwiSaver has been a roaring success. The scheme’s goal of encouraging people into retirement savings schemes has exceeded expectation. Prior to its introduction, just 16 percent of New Zealanders had a savings scheme for their retirement. By 2016, more than three-quarters of New Zealanders had a retirement savings scheme. But, unfortunately, the reason why this bill’s timing is good for this House is that actual savings rates in New Zealand have not risen all that much. In fact, they’ve remained very static over the same period and remain sad by international comparisons. Further, unfortunately, the words of Sir Michael Cullen have yet to be realised in their full context—he said at the time of the introduction of this, “If we save more, we will no longer need to borrow so much from overseas to finance consumption and business expansion at home.”

New Zealand First believes that the KiwiFund proposition in this bill would ensure that these words are truly and fully realised. What we do know is that KiwiSaver has started to help people into their retirement. This will definitely continue to increase over time. It is a boon to individuals and a boon to the New Zealand economy, although, as I will touch on later, there is much more to do in this space. We know there has been no change, or next to no change, in the average fee charged since 2012. The fee structure has remained very much static and this has been much of a driver behind this bill. So when we take that into consideration, simple extrapolation would tell us that in 20 years—yes, a long time from now—unless something’s done, unless we look at it now, the total fees charged in that time will have been over $12 billion. Two years after that—only two years after that—the same sum total exceeds $20 billion. That is a huge amount of money being taken out of the savings of New Zealanders’ retirement programmes for fees and whatnot; $20 billion in total and in those two years an $8 billion difference.

Then there are the individual examples. It has to be based on some very broad assumptions, but current analysis highlights that a typical savings scheme for a person’s retirement with a balance of half a million dollars at maturity would have paid almost $100,000 in fees at a similar rate on offer today. So providers came to us and said—well, not all providers actually; some providers said, “Well, actually, a higher fee rate means a higher level of interaction with the client. It’s a managed fund, we’re doing more for the people who have chosen to invest with us.” But I put it to this House, as I put it to those who came and spoke to me—and I thank them for it—that nearly 95 percent of New Zealanders with a KiwiSaver account are still with their default provider. But nothing’s changed, so what is the real level of interaction? So 95 percent are still with their default provider and, even more unfortunately, those same people are in their same investment scheme and have obviously given no consideration to their risk profile.

People don’t know the terminology. They don’t understand that they can change the nature of their investment to best match their risk profile at this stage of life. They do not understand the implications of this in their savings life cycle and are missing out on maximising their returns. Simply put, in the end, they will have less money when their KiwiSaver finally pays out. With what would likely be lower fees, more of that money can be used for growing investment returns; hopefully, putting more money back into the pockets of KiwiFund investors, which is what this bill seeks to achieve.

KiwiSaver fees, despite an exponential growth in funds under management, are doing well, and some providers are doing really well. The management fee structure hasn’t changed since 2012, like I said, on average. We know, by contrast, that the fees for the New Zealand Superannuation Fund, a fantastic scheme, which was looked at this morning by the Finance and Expenditure Committee, dropped substantially to the clientele who invest on behalf of the Superannuation Fund—from 0.7 to 0.1, as a very clear measure. Around the world we looked at examples and saw the same phenomenon. For investors, as that capacity grows, as their ability to leverage scale increases, their fee structure comes down, and I put it to this House that that has not happened in New Zealand.

I appreciate that saying all fees are too high is too simplistic, but this bill does not determine that all fees are too high. Rather, this is an opportunity to take stock, pause, and acknowledge that this country is sitting on a figurative time bomb where billions of dollars per annum will not be returned to New Zealanders in their retirement schemes, will not be spent in New Zealand, and will not help grow the New Zealand economy. Rather, unfortunately, the majority of those moneys will be heading overseas.

The transparency requirements, supposedly already set, are, according to some large industry players, insufficient. So some of the players in the industry themselves acknowledge that they themselves are not sure about the transparency requirements within the current legislation. They say that some others—not all—are not playing ball and customers are still not fully aware of just what they are paying for and how this affects their returns.

I’ve said it and I’ll say it again: this bill has been drawn at just the right time. We know that the providers have gone beyond their initial start-up. They shouldn’t be claiming recovery of start-up costs at the moment; they’ve gone beyond that. So let’s have a look at that. We seek to look at accountability, at transparency. New Zealanders have made some very serious complaints in the past and this is what we want to address around fees, transparency, ethical investments, and just what they’re getting for their money.

New Zealand First unashamedly wants a new provider to be established. This would be known as KiwiFund, and New Zealand history is on our side, in fact. Kiwibank tells the story of determination and of conviction. Everyone in this House knows that Kiwibank was the right thing to do. The KiwiFund would be the right course of action for New Zealanders. They would see good returns, a low fee structure, and ethical investment with preferential treatment given to investment here in New Zealand, and with that, Sir Michael Cullen’s words would come true.

A KiwiFund would also mean a focus on investment back into New Zealand. I put it to this House that that is very much complementary to the Provincial Growth Fund that this coalition Government is very much championing and, as the Minister said, has gone ahead leaps and bounds. It would be complementary to that in an independent manner. But it’s all about investing in New Zealand and allowing New Zealanders to choose to save their money with a provider that would focus on investment in New Zealand.

So it is with extreme pleasure that I put this bill to the House. It’s an exciting time for this country, and I am absolutely proud to be a small part of it. Thank you.

Thank you, Mr Assistant Speaker. It’s a pleasure to be talking on this KiwiFund Bill, and I congratulate Mr Fletcher Tabuteau for having yet another bill drawn from the ballot. I just wish he was slightly excited about it. I’ve just got to say Mr Tabuteau’s a very likable and personable person, and a professor of many things, but I’m just not quite sure about this bill.

Now, before I get into it, I think it’s useful just to recap exactly what the bill proposes. What this bill proposes is to establish a working group by legislation—by legislation. It is to have a working group of four to six people to look at or to examine, first of all, whether KiwiSaver providers at the moment are charging exorbitant fees; the second thing is to see whether they’re investing in unethical investments; and, thirdly—and I find the terminology interesting—whether they’re generally “profiteering in the trading of KiwiSaver providers.”

To be honest, I don’t understand what “trading of KiwiSaver providers” means. But, as Mr Tabuteau noted in his speech, the working group would advise setting up a new KiwFund to achieve the following—and I will just quote here. The first one is “lower and”—I presume, more—“transparent” fees, because transparency is an issue that is already being covered, and I’ll talk about that later; secondly, “a government owned and operated KiwiSaver scheme;”, as opposed to one owned by other parties; thirdly, “a requirement that profits stay in New Zealand;” fourthly, “preferential treatment given to New Zealand based investments;” fifthly, “a requirement that funds are invested in socially and ethically responsible ways; and—last, but not least—a Government guarantee around all these activities. Well, what a list.

Anyway, I think that it was very timely, as Mr Tabuteau noted this morning, that the Guardians of New Zealand Superannuation—they’re the ones that manage the New Zealand Superannuation Fund—came to see us at the Finance and Expenditure Committee this morning. And what a success story.

💬 Michael Wood: “Thank you to the fifth Labour Government.”

And I can see a couple of the members on the other side there—$6.2 billion in profit they made for hard-working New Zealanders last year, $38 billion in funds under management, and an average return since it was formed, in 2003, of 10.22 percent a year—10 percent a year. Outstanding; in fact, it is one of the best funds in the world.

But I also note that this is the New Zealand Superannuation Fund. If we look at the rest of the superannuation industry, there are nine default providers, of which Kiwibank is one, and then a host of third-party providers, who provide very professional management of funds on behalf of a whole raft of New Zealanders.

So I just wanted to take this bill and take it back to the key principles that we’re seeking to address. The first one was the achievement of a lower and more transparent fee structure. Well, first of all, I’ve got to say I support the notion of reviewing the fees in the superannuation industry. I think there are grounds to have a review of that, and I do support that. I would note, however, we have a vibrant and competitive fund management industry, as I noted before. For instance, I would note that Simplicity NZ, since it came into our market only 18 months ago, has now got $350 million under investment and is one of the lowest-fee providers of funds in New Zealand. It has made great inroads, partly because it’s offering the lowest level of fees. So it does show there is a vibrant industry, and not everyone wants to charge and compete merely on returns, but they want to compete on net returns after fees.

I do note Mr Tabuteau’s comment that 95 percent of people are still in their default provider fund. So even if you set up this fund, I’m not sure you’re going to see everyone migrating to a lower fee structure arrangement. So I just don’t think this bill actually helps.

The second test was to offer the option of a Government owned and operated KiwiSaver fund. As I noted before, you’ve got New Zealand superannuation, which is owned by the Government—controlled by the Government, in effect—and then you’ve got the Kiwi Wealth KiwiSaver Scheme. The last time I saw it, that was set up by New Zealand Post, which is owned by the New Zealand Government, and which, more recently, has had co-investment with New Zealand superannuation. So, in effect, we already have a Government provider.

So I think it’s slightly incorrect to suggest that there is no Government involvement in the sector. In effect, what I think this bill is suggesting is that we actually set up a third Government-owned entity to operate in this sector, and I’m not actually finding the reasons to do that very compelling.

The next issue is the one raised around the requirement that profits stay in New Zealand. But, again, as I noted before, we’ve already got strong involvement in the sector, and those profits all, of course, are retained in New Zealand. The other operators all pay tax. They pay significant amounts of tax. In fact, the New Zealand Superannuation Fund told us this morning that they’ve paid $4 billion in tax since they’ve been established, and where does that come? That comes back to the Government, of course. So they’re already paying substantial tax, and I think the requirement that all of the profits stay in New Zealand is a notion that’s somewhat misguided.

The fourth issue is the test around preferential treatment given to New Zealand investments. Again, at a high level, it sounds very compelling and it sounds great. But I think it’s a classic New Zealand First policy that sounds very popular—“Let’s invest in New Zealand. Let’s support New Zealand.”—but, actually, when you think through it for a little bit, it is actually a misguided initiative.

For instance, the New Zealand Superannuation Fund has approximately 14 percent of its investments invested in New Zealand investments—only 14 percent. It’s actually quite a high proportion. What people don’t realise is that if you were just to invest in New Zealand assets, whether they are businesses, listed companies, bonds, Treasury, and everything like that, what that means is that you have a far higher risk portfolio. That leads to greater volatility and, ultimately, it means lower returns for New Zealand investors. That’s why all these funds, whether they are privately owned or whether they are Government-owned, actually always have a component of international equities, property, and Government stock. That is about returning the highest level of return to New Zealanders. So I think that idea about keeping it all in New Zealand investments is misguided and also not well-thought-through.

The fifth test, of course, is the requirement that a fund invest in socially and ethically responsible ways. This is a matter I took up with the guardians this morning, and they’ve been very proactive since they started addressing this issue. What they told us is that they have, since 2009, changed their fund managers to make sure that they are only investing in ethical investments. They’ve actively deselected fund managers who are not meeting those requirements. And for third-party fund managers, they’re actually now piggybacking off the back of that by looking at the range of fund managers that the New Zealand Superannuation Fund has selected, and are using them as managers in their own funds. And they also covered the issue around sustainable investment and carbon, and they’ve also stopped investing in a number of other companies.

The last issue, of course, was that of Government guarantee, and I just think we haven’t heard any reasons why you’d want to do this and why it’s needed. As a number of commentators have observed, why would you be a member of a non-government scheme if everyone else didn’t have such a guarantee behind them? And, secondly, actually, one commentator said it’d be a moral hazard for an active manager to be managing personal portfolios.

This is another working group that’s been offered to be set up by legislation. This Government has already set up 12 working groups in 121 days. That’s on average a new working group every 10 days of office. This would be number 13. You do not need to legislate to look at these issues. You do not need to legislate to set up a working group. If there is a need to look at any of these issues, then they should get to the point and go ahead and do it. But you do not need a legislative process to do this. And, on that basis, I think all this is going to do is turn into another talkfest.

Can I say at the outset of my comments that this is a proud day for the parliamentary under-secretaries of this House. “Team PUS” has a bill in the ballot that I believe has a good chance of success, with this KiwiFund Bill. So congratulations to my colleague Fletcher Tabuteau.

I also, while I’m in a generous mood, want to congratulate the previous speaker, Andrew Bayly, for genuinely giving an excellent speech on the New Zealand Superannuation Fund. And what I admire most about a person is their ability to reflect on past wrongs and to come to the light. Because, of course, what we know about the National Party is that they opposed the implementation of the New Zealand Superannuation Fund at every single stage. They voted against it here in Parliament, and I’ve got absolutely no doubt that if we go back into Hansard and review the remarks of National Party members at that time in 2002—and the Hon Ruth Dyson might remember some of those—we’ll hear that it was socialism, that it was communism by stealth, that it was a terrible thing.

But we’ve just had an excellent address from Andrew Bayly about the importance of that fund in building up our national savings rate. And, of course, the previous National Government didn’t contribute one dime to it, in its nine years in Government—something that’s been rectified with a billion-dollar investment under this Government this year.

What I am proud to do is to stand here on behalf of a party and a Government that is a party and a Government of savings. We are a Government that is absolutely committed to New Zealanders having the savings to build our national wealth, to develop our economy, and to ensure that every Kiwi family is able to live in dignity and with some stability in their later years. And the outstanding success of KiwiSaver—another measure that was opposed by National when they were in Opposition last time, with every bone in their body. It has been an outstanding success—moving from only 16 percent of New Zealanders having superannuation savings, to 2.7 million New Zealanders, or 75 percent of Kiwis, now having savings through KiwiSaver. So I say thank you to that previous Government and thank you to Dr Michael Cullen for having the vision and the foresight to ensure that we had a proper savings scheme for all Kiwis.

And what is this bill about? This bill is about saying, “Well, that’s great, but there are always things that we can do to improve our framework.” And in this case, it’s about recognising that while many Kiwis have taken advantage of KiwiSaver and that’s giving them greater security in life, that there is without any doubt whatsoever an issue when it comes to fees—that there are questions that need to be looked into in this area.

We know, for example, that 60 percent of KiwiSaver funds are held by the major Australian trading banks. We know, for example, that the fees are relatively high, and I refer to a report here from the Financial Markets Authority, which reviews the KiwiSaver schemes on an annual basis. It tells us that investment management fees rose by $46.8 million, from $219 million in 2016 to $266 million in 2017. So we have over a quarter of a billion dollars every year that is being pumped out of those savings and into the pockets of fund managers by way of fees. Administration fees rose $4.6 million dollars, or 5.9 percent, in that year, from $77 million to $82 million. Per member, the average administration fee paid increased from $29 to $30 that year.

So it is something that is very much worth looking into. And some of the advice you get from smart people in the sector, for people who are looking to invest in KiwiSaver is, “Look at the fees, and base your investment on that.” Another paper that I read, by Brent Sheather, who is an authorised financial adviser and a commentator, noted that the average fee of growth-oriented KiwiSaver funds at around 2 percent a year, including transaction costs, is more than 20 times the average fee paid by institutional investors like the New Zealand Superannuation Fund and more than four times the average fee prevailing in more competitive savings markets like the 401(k) scheme in the United States. Why wouldn’t we look into that to make sure that Kiwi savers are getting the best possible savings scheme possible? Why would we not do that?

Mr Tabuteau’s bill is quite refined. It’s quite modest. It says, “Let’s set up a working group with smart people from the sector who know their stuff to look into these matters, review them, get the evidence, and produce a report that will then go to the Minister. It will then come back to this House where it can be looked at, where we can consider the recommendations, and look at whether we can make that great KiwiSaver scheme even better than it is.”

This is a bill that I commend to the House. I’d urge other members to consider it. And can I just acknowledge the contribution of Fletcher Tabuteau and the New Zealand First Party for bringing this issue to the table. I think it’s a good bill, and I’m very happy to see it proceed to the next stage. Thank you, Mr Assistant Speaker.

Thank you, Mr Assistant Speaker. Taking a call on this KiwiFund Bill, I would like to congratulate the member Fletcher Tabuteau for bringing it to the House, but, you know, it’s very interesting to me—we’ve just had a presentation by Andrew Bayly, who talked about a new working group being set up every 10 days, and now here we’ve got a piece of legislation in front of us to set up another working group and another working group and another working group. It seems to be the story of the way that this current Government wants to operate.

Something that scared me a little bit before was when Fletcher Tabuteau said that, you know, this could be a great thing and it could be akin to the Regional Development (Provincial Growth) Fund. Well, the Provincial Growth Fund actually sounds like it should be a good idea, but nobody actually understands what’s going to be achieved from it because we’re still trying to get the facts, the application, and everything. And we hear that there’s going to be something happening later on this week in terms of announcing what’s going on so that people will totally understand it—so starting to finally realise how it’s going to work.

So we set up committees, we put all these things in front of people, and then this Government makes promises and says we’re going to have this, and it’s up to the people then to go and figure out how it’s going to work. So it’s all talk and no action.

I want to know: if Kiwibank is already Government-owned, what’s this new fund going to do that Kiwibank’s KiwiSaver fund can’t do? And I know that Fletcher Tabuteau talked before about the over 90 percent of people who are using the default system, but is that a reason to go and do a whole new piece of legislation and set up another working group? Is there not an issue here with, actually, an education programme? Is there not an issue here—we’re talking about things in schools every day around here at the moment. Is it not about educating people to be able to take part in it? So we can look at the system and we can say that because over 90 percent of these people are taking the default option, we need to do a piece legislation and we need to set up another committee.

Michael Wood got up and he talked about reflecting on past wrongs and coming to the light. This obsession with the KiwiFund already drove a wedge between New Zealand First and Labour in 2013 when the then leader David Cunliffe said his party didn’t think that the KiwiSaver industry was fundamentally broken. So it might be a point here either to reflect on past wrong and say that you’ve come to the light or maybe explain to us what’s changed in that period of time since David Cunliffe came out and made that stand.

Also, Michael Wood talked about savings, and talked quite a bit about savings. I’m a huge supporter of people making savings, but one of the things I’d like to know in line with this, when we’re talking about KiwiSaver, is that prior to this last election, when this team of people became the Government, they were talking about bringing back the $1,000 starter for KiwiSaver. I’m still waiting for any announcement that said that might be likely to happen. So there might be somebody that might want to enlighten us on what’s going on there.

Andrew Bayly did have a really good point when he talked about having a look at the fees.

💬 Andrew Bayly: He had lots of good points.

Yeah, he had lots of good points, but one of the ones he talked about, he said there is a good reason to have a look at a review of fees, and there’s never any problem with having a look at a review of fees, but you don’t need to set up a piece of legislation and set up another committee to do that.

Some of the feedback from the financial sector that came from the Financial Services Council of New Zealand basically said that “The Financial Services Council supports initiatives that build a sustainable financial services sector, and deliver strong consumer outcomes, but it is unclear what problem the KiwiFund Bill is trying to solve.”

So I stand here today in opposition to this bill, but if this Government and all of the parties on the other side of the House, in their wisdom, decide to support this bill, then I would certainly be looking forward, in the committee stage, to finding out what the problem really is and answering the Financial Services Council’s questions. So, thank you, Madam Assistant Speaker.

Kia ora, Madam Assistant Speaker. Ngā mihi nui ki a koutou, kia ora. If you were listening to the debate, you’d think the reason why National is voting against this is because it contains a working group. I don’t know which part they’re opposed to—the working or the group nature of it. When they were in Government, they would have just outsourced it to offshore bankers. That would have been their solution. The irony, of course, is: how many working groups did the last Government set up? There was the Savings Working Group, the Tax Working Group, and the Productivity Commission. National, of course, set up their fair share of working groups because it is an eminently reasonable thing to do. You want to get expert advice.

So I commend the member Fletcher Tabuteau for introducing this legislation to the House. Everyone here has seen those horror stories, of people’s KiwiSaver accounts being whittled down because of the fees. We’ve all seen the figure—half a million dollars, $500,000 worth of savings, and $100,000 of that could have been the fees eaten in. Of course, it’s not just the direct fees that the saver is losing. It’s the forgone interest. It’s the ability to have extra money into the future, for retirement or saving for a house. What we do know is that nationally, under the status quo, the amount of fees charged could have hit $12 billion by Kiwis within the next 20 years.

I heard the last speaker say, “Well, let’s look at the fees.” Now, it’s a bit rich to say “let’s look at the fees”, after you’ve just spent nine years in Government not looking at the fees. The time to look at the fees is when you are in Government and you have the ability to do it. It’s pretty rich or, in terms of KiwiSaver savers, it’s pretty poor for them to have waited nine years.

So, look, KiwiSaver has been transformative for New Zealand, but it does need a bit of a tweak, a change, to make it more effective. It’s been transformative, but we still have a savings problem. Back in 2015, James Shaw pointed out that we were ranked 22 out of 24 OECD countries for our savings rate. It’s a big reason why our markets lack liquidity, a big reason why our businesses lack access to capital, and a big reason for the New Zealand paradox, where ostensibly we should be a higher-performing economy than we actually are. I think it’s because of our savings rates, and because of our woeful R & D spending rates.

What this bill does is it sets up the working group to establish KiwiFund, a public provider KiwiSaver, to reduce those fees. This is something we support, and something Russel Norman first proposed back in 2011. Of course, it’s not just us and New Zealand First; it’s also National’s very own Savings Working Group. They recommend it because it’s good for Kiwis. It’s going to increase the amount of savings they have to buy their first home or to fund their retirement. It’s good for consumers. But, secondly, it’s also good for the other providers. We’ve seen what a transformational change Kiwibank has provided in the banking sector, and this could do for the KiwiSaver sector what Kiwibank has done in that sector. So it’s good for consumers and good for the market.

We look forward to hearing about this in select committee, and in particular I’d really acknowledge the principle the member has enumerated, which is the preference for New Zealand investments. I want to see more Kiwi investments being funded. I’ve seen some figures, that only 10 percent of KiwiSaver funds are invested in New Zealand equities. I think many people would be surprised. They look at what the ACC fund, the super fund have done and I think they’d be surprised at that low rate.

I also note the concerns of some commentators—I think Brian Easton was one of them—saying, “Well, could you actually get less than ideal responses, lower returns, which in turn send a lower rate for consumers?” We want to flesh that out. We want to hear from the experts.

But while we’re talking about tax, let’s not forget the nine years National had and their woeful record when it came to tax. It was them who, under urgency, scrapped the $1,000 KiwiSaver kick-start, which had been so successful at seeing Kiwis sign up in record numbers to a savings scheme. It was National who voted against our amendment, which would have seen community services cardholders, some of the lowest paid and most vulnerable Kiwis, have the ability to access that KiwiSaver kick-start. It was National who didn’t support our proposal to see a kids KiwiSaver account created, which on our calculations, with that $1,000 kick-start, could have seen most children build a nest egg of $12,900 by the time they turned 18, for education, a first home, or for building up those KiwiSaver funds in the future.

We are supporting this legislation because it’s a good bill. It’s going to have good outcomes for Kiwis, good outcomes for our communities, and good outcomes for our economy. This is, ultimately, what the Green Party is in Parliament for—to grow a richer New Zealand, in a quality-of-life sense, but also in a financial sense. Kia ora, Madam Assistant Speaker.

I rise to speak against this KiwiFund Bill. While I have a lot of respect for the honourable member Fletcher Tabuteau and the fact that he has got a member’s bill into the House, I’m actually left asking the question: what are we trying to fix here? If you actually look at our savings record—and Michael Wood commented on it—we now have 75 percent of people saving for their retirement. That has largely happened under a National Government. You might criticise how it happened, but it’s largely happened during that time. It hasn’t happened yesterday; it’s happened over the last nine years.

Actually, there is nothing to currently prevent anybody, including the Rt Hon Winston Peters, from setting up a superannuation fund himself, with very low fees, without a Government guarantee, to actually support the people he’s claiming he wants to support. There is actually nothing in law to prevent that from occurring.

So what we’ve got in this bill is another working group. This is the 13th working group. It will have 12 months to review things, and five members to look at a whole series of things that I actually think can be looked at in a very different way. So we’ve heard a lot of concern about fees. I get that. I understand that every person that makes an investment or is part of one of these schemes largely operates in a passive way. I understand that, but they want to make sure that they’re not being ripped off.

Well, actually, there are fees published annually. You can find them out. There is a variety of fee structures operating in a market at the moment, but, actually, if what we’re trying to look at is fees, why don’t we do an inquiry into superannuation fees? I listened to Michael Wood, who happens to be the chair of the Finance and Expenditure Committee. While it’s not his committee, actually, if that’s what is required, we could easily, through one of the select committees, do an inquiry.

But what we’re going to do is not do that. We’re going to bring in a piece of legislation and take it through a whole process, after we’ve had a working group, to see whether there’s actually a problem. Actually, we don’t need any of this. We could simply have an inquiry. If the issue is about transparency, the same thing could apply. If we’re worried about how transparency is dealt with, the same thing could apply. We could ask some people to look at it. If there’s a big enough issue, it could be dealt with.

I also think that this Government is really mocking its own brand, which is what KiwiSaver has done, through Kiwibank—a Government-owned entity that is going really well. I also accept that if there was, and there does require to be, some level of investment in New Zealand from these fund managers, that, equally, is not a bad laudable goal, as long as everybody understands you might not get the top rate of return or the risk profile might be different.

Currently, there are nine default providers. There are heaps of small funds, and, actually, there is no limitation to setting up your own fund. And for the life of me, Mr Tabuteau, I cannot understand why you are following down the Government guarantee path. Why would you want to expose the Government to actually managing people’s funds in a different way than they are managed, largely, by the private sector or, in KiwiBank’s case, by a Government-owned entity? What you end up with is if you have lower fees and you put constraints on things, then, actually, people generally will get a lower rate of return—generally. Now, there are lots of funds already available in the private sector that, actually, people can make those calls.

💬 Michael Wood: Or maybe the Australian banks could just make a little bit less profit. Has it ever occurred to the National Party?

Yes, and people can make that call, but they don’t need a Government guarantee process to do that, nor do we need another Government fund. At the moment, we have gone from 16 percent—as Michael Wood said—of people making investments in long-term savings to 75 percent under the current model. If the only issue we’re worried about is fees and transparency, why doesn’t that side of the House initiate an inquiry to look at it, without taking the House’s time going through a process that, quite frankly, is not required? Thank you.

Thank you, Madam Assistant Speaker. The last speaker, Lawrence Yule, said, “What is the problem?” The fact of the matter is there is a significant problem here, and it’s with considerable gratitude that we can thank Mr Tabuteau for bringing it to the attention of this House.

💬 Hon Members: What is it?

I’ll tell you what—the key problem here is that the fees in KiwiSavers erode savings, and they erode them really significantly. The Treasury report that our friends from the Greens commissioned actually identified exactly what that did. In fact, if you have a half a percent difference in fees, that’ll make a 6.7 percent difference in the final return. So if you were lucky enough to have hidden away $300,000 in your KiwiSaver, that would mean you were $20,000 worse off. Now, when we look at a half percent per annum on our KiwiSaver fees, we might not think it’s very much, but when you look at it like that—

💬 Barbara Kuriger: We can do the maths, but Mr Yule just told you a much simpler way to achieve the outcome.

—on what must be said to be a moderate amount of savings—that’s cutting it. And look, the member there is shouting out, but she might be interested that, in fact, it’s women who actually suffer worst here. We know for a fact that women need to save more because they live longer, they take breaks from the workforce more often than men do, and they earn less—we’re addressing that as well. So these KiwiSaver questions actually cut more deeply for women than men, because they need to provide more carefully and they’re less equipped to do so over time.

So when we come to look at these questions—and so much for transparency. The fact of the matter is that I challenge any member on the other side of the House to go and find out how much their KiwiSaver fees are. Whilst you might get some headline figure of 0.95 of a percent, the fact of the matter is that hidden in another layer are brokerages, administration fees, and all kinds of other provisioning—layer upon layer upon layer.

The fact is that because of the default framework we have, there’s not a huge amount of competition in this market. People very rarely change KiwiSaver providers, so the provision of a State-backed or a State-run KiwiSaver provider would put some real competition into the market. It would be manifestly better, because what we need is market discipline, and we know for a fact that the market fails over time. So we’ve got the fees question, which I think is the most important one, because that’s how we make sure that ordinary, genuinely hard-working New Zealanders can finish their working life with as much in the bank as possible without paying to offshore bank owners.

But the other things that are proposed in this bill are also very, very good. The idea that profits stay in New Zealand and that we invest in New Zealand—we know that New Zealand suffers from a lack of capital, and so there’s absolutely nothing wrong with saying let’s both have a fund that has lower fees and have a fund that generates business and prosperity within New Zealand. The idea that we need to give our money away to banks, who immediately invest it offshore—we can get away from that.

As was noted before, the guardians of the New Zealand Superannuation Fund themselves are increasing their New Zealand investment. It was pointed out there by the guardians that, in fact, that is entirely consistent with a good return. So you can have both a risk-balanced return and a good return on that investment, and low fees, and invest in New Zealand. When we do that that has a double benefit: not only do we maximise the return for the person who’s looking at retirement but also we are supporting New Zealand businesses, and that’s what this Government is about—not about multinationals, not about propping up multinationals, but about supporting New Zealand businesses.

Of course, the other thing we want to do—and this is something that I know we want to look at closely—is ensure that Kiwi funds are investing ethically, and we need much, much more transparency around that. The fact of the matter is that it’s very hard to determine exactly what funds are invested in, so we need to have a very close examination of that. We want to have investments that look forward for New Zealand—and indeed for the world—including questions on things like climate change. So, Mr Tabuteau, I commend you on bringing this to the House, and I commend this bill to the House.

Thank you, Madam Assistant Speaker. I think that previous speaker, Dr Duncan Webb, got a little sidetracked from the bill we’re actually debating here. He spent a lot of time talking about fees, and whilst indeed there may be a case for reviewing the current fee structure, this bill doesn’t do that. This bill has nothing about reviewing fees in it at all. Actually, the example he gave about the $300,000 and having another $20,000 if they weren’t hit with these terrible fees—well, I think you would find you would not have $300,000 if you were in KiwiFund, compared to other funds, because you would have a typically lower return on your investment.

What we would see, if we’re having a Government guarantee in behind this fund, is that it would have lower returns because of the lower risk. That’s how these things work. Risk and return—I’m sure that member has heard the term before. What you would find as well, though, is that, actually, if you were constrained to a domestic market you would have a higher risk profile within that fund because of the inability to invest offshore and diversify that risk. So I think he’s a little confused there, and it seems to me that they’re really just advocating for additional State control. We’ve heard it so many times already, and this is just another example of that.

The KiwiSaver industry is in good heart in New Zealand. We’ve got over $40 billion of funds under management. More than 75 percent of Kiwis are now invested. This is an unnecessary solution to a problem that doesn’t even exist. We’re operating in a competitive market at the moment that’s well-regulated and of a high standard. Consequently, there’s a high level of public and regulatory confidence. We don’t need this. Yes, I certainly accept that, perhaps, there is an area to explore around the current fee structure—what is or isn’t disclosed in headline fees, as the member suggested. But that certainly doesn’t need to be done via this piece of legislation.

In fact, you don’t need legislation to create a working group at all, such as this bill is proposing, and we’ve seen that. The Government certainly knows they don’t need legislation to create working groups; we’ve already had 12 in the last 121 days. We’ve had the Film Industry Working Group, the pay equity working group, the Tax Working Group, the ministerial advisory group to review NCEA, the group to stocktake the housing crisis, the Climate Commission, the inquiry into State care abuse, the inquiry into mental health, the bowel screening review, the inquiry into the fuel pipeline outage, a three-year review of the education system, and, most recently, the dairy industry review—one that is significantly concerning for constituents in my area of the Waikato. We have no idea what’s going on, and all we’re seeing is continual talkfests around creating these working groups, to try and pad out what the Government might or might not choose to do, because they actually still don’t know.

I suggest that whilst there may be a case, as I’ve mentioned, to review the fees, we certainly don’t need this KiwiFund Bill. It’s unnecessary—the industry is already performing well, people are getting great returns at the moment, and there’s over 75 percent of people invested—and yet we still are looking at another example of a Government bill looking to take State control and take away the opportunity for Kiwis to make decisions for themselves.

So I’m opposing this bill because there’s absolutely no need for it, there’s no place for a working group at this point, and we’ve already had more than we need. I would encourage the member to put his energy into something a little more productive that might be a bit more appropriate for New Zealanders. So, on that note, I would just encourage them, again, to consider exactly where the industry is at the moment, what’s happening in there, and what they’re trying to achieve through this. As we’ve heard, there’s no aspect of this bill anywhere that suggests we’re going to be reviewing fees. So I think, if that’s what they really want to do, then they can do that, as we’ve already heard, through the select committee process, which will be much more straightforward and much more transparent. So that would be my recommendation to the Government in this instance. We don’t need the KiwiFund Bill, and, for that reason, I won’t be supporting it. Thank you, Madam Assistant Speaker.

Thank you, Madam Assistant Speaker. It’s a pity that the previous speaker, Tim van de Molen, isn’t going to be supporting this bill through the House, because it is a good one. I got the compliment in there too, because he started talking about KiwiSaver and just how well it’s doing. We need to just give a little nod to the fifth Labour Government, who brought that in back in 2007. So, based on the success of how KiwiSaver has gone, we’re currently in this position now, where we’re having this conversation at all.

I support this bill—this KiwiFund Bill. I think it’s a great initiative. I’m going to support it through to the first reading. It’s designed by my colleague over here, Fletcher Tabuteau, from New Zealand First. It sets up a working group—yes—and that was the main criticism from the previous speaker: that working groups are bad and Labour sets up too many working groups and we probably shouldn’t. If, by setting up working groups, we’re talking about setting up a group that is going to do its due diligence and give advice in areas that they are experts in, then, actually, that’s a really good thing. In fact, that’s called consultation—consultation with experts. So I don’t quite understand where he’s coming from—where he bats down the thought that a working group is a bad thing. I think that a working group is a great thing.

In terms of what this bill is going to do, it’s going to establish this group, and we’re talking about five people who are experts in their field. So we’re looking for people from banking, from savings, and people that are experts in retirement issues. These people are going to convene, get together, and they’re going to investigate into something that the Opposition might not think is that important—you know, a fee here, a fee there. But what this bill does is it goes in to bat for the little guys, you know—the people that can’t actually afford a few dollars here and a few dollars there; those Kiwis out there that have got their money invested in KiwiSaver. Yes, per provider, it might not be so much, but, in fact, if we have a look at collectively how much was taken recently—I’ve got it right here. Simplicity, which is a low-cost passive KiwiSaver scheme provider—Sam Stubbs—he said that “In January [2018], KiwiSaver schemes charge a combined $40 million in fees.”—$40 million in fees. Yes, the KiwiSaver fund is doing well—$40 billion is what it’s doing—but when it’s skimming off the top and taking $40 million in fees, then we need to look at this. We need to decide what actually is going on here.

So the idea of setting up a working group to look into the accountability requirements of current KiwiSaver providers relating to their fees and their investment practices—it’s a good thing. Also, second to that, establishing this working group—advising on whether or not we should be establishing a Government owned and operated KiwiSaver provider. These are two very, very simple aims of this working group, and this KiwiFund Bill is talking about this. I think that it’s a great thing, and we need to be supporting this through. I just can’t understand the Opposition’s opposition to it, because Labour and New Zealand First both share the concern that KiwiSaver fees are way too high. So, if what we need to do is set up a working group to sort this out, then that’s exactly what we need to do.

I’d also like to talk through a couple of other points. A Treasury report from September 2015 also pointed to the fee levels for KiwiSaver, measured with reference to the OECD’s operating expense ratio data, being in the upper third of comparative countries. We’ve even got a couple of Auckland University of Technology (AUT) academics that, in their report KiwiSaver, Who is Really Reaping The Benefits?, alluded to the fact that “Annual fees [on] KiwiSaver … are far above international standards and are not justifiable given their relatively poor performance since inception.” That’s the opinion of two academics, but that’s what we’re going to be sending to select committee—advice like that; columns like that—so that this working group can actually investigate into this.

Also, the Commission for Financial Capability stated recently that KiwiSaver fees are one area where it’s not necessarily true that you get what you pay for. Higher fees don’t necessarily mean high returns or better service. Dr Ayesha Scott, from AUT, also said, and I quote, “Ultimately, the best advice for anyone embarking on KiwiSaver investment is to choose the fund with the lowest fee structure for the fund type that you are investing in”.

This is a good piece of legislation, and I’m going to support it through to the first reading. It’s going to head over to the Economic Development, Science and Innovation Committee, of which I am a member, so I’ll be following the progress of this bill through the House, and I welcome it. Kia ora.

Thank you, Madam Assistant Speaker. It’s a pleasure to be taking a brief call this afternoon on the KiwiFund Bill. I want to start by actually echoing some of the comments from across the House and to congratulate Dr Michael Cullen, because I think KiwiSaver was and is a good idea. It’s given many people out there an opportunity to save, who otherwise probably wouldn’t have the opportunity, and, in my own personal circumstance, it allowed me to buy my first home with my wife.

💬 Hon Member: Good idea, Andrew.

It was a good idea—it is a good idea. It was a substantial contribution to New Zealand savings. It is everything this bill is not.

So this KiwiFund Bill, it is disappointing because all it does is set up a working group. I’ve spoken in this House before—several times actually, I think, now—on the number of committees and reviews that this Government seems to have a habit of setting up. What they do is, when they don’t have an idea about what they’re going to do next, decide to kick it down the road by setting up a review or a committee. We’ve seen it a lot recently. As my colleague mentioned earlier, the dairy industry, there’s a review on that; they’re setting up a review on tax; there’s a review on climate change; and, of course, just today, they’ve established a review on education to try and deflect attention from their disgraceful decision to close charter schools.

💬 Hon Carmel Sepuloni: You started so well.

I did. It’s continuing on, trust me. If this bill passes, it’s going to take hours to pass through this Parliament and pass through this House. It’s going to waste hours of House time and many, many more hours of select committee time. It’s an absolute waste of time. We don’t need legislation to start a review. As my colleagues on this side of the House have all been saying all afternoon, the Government could go off and decide to set up a review tomorrow or a committee tomorrow.

💬 Brett Hudson: Why don’t we have a review of the reviews?

My colleague Brett Hudson has just, I think, put forward a very worthy suggestion of setting up a committee to look at all of the reviews and the committees that the Government’s set up.

It is a waste of time. The Government would be far better off picking up, I think, a very worthy contribution from my colleague Michael Woodhouse, who has drafted a bill to establish additional contribution rates for KiwiSaver. That is a far more substantial contribution than this bill. I invite the Government to pick that up and to not waste this Parliament’s time.

Thank you, Madam Assistant Speaker. Thank you for this opportunity to give this reply. I just want to acknowledge the kind words of my colleagues on this side of the House and, actually, predominantly, the kind words of those in Opposition. It is a milestone—by the looks of the numbers in this House—for myself, and I am proud of the outcome.

Can I just give some reassurances. There were some very deliberate attempts to misinterpret this legislation from the other side, so it’s very appropriate that we get this five-minute right of reply. Can I say that the irony of the situation is that if we had acted unilaterally and just moved forward with legislation to change the KiwiSaver industry, the argument from the other side of the House would have been the exact opposite of what it is now—“Why are you acting unilaterally and not consulting or engaging with the industry and the very people of New Zealand?”, who very much care about the outcome of this piece of legislation.

Yes, it is another investigation, but it is an important one and it is an appropriate one. It is a response to nine years of apathy—a very deliberate, conscious decision by that party over there to not do anything so as not to offend anyone for nine years—and that doesn’t just relate to this piece of legislation. This relates to so many things that have affected New Zealanders over the last nine years, and now we’re in a Government that is prepared to do something about it.

So thank you for the vote of confidence from the members on this side of the House. Thank you for your articulate arguments and your support. It does actually mean quite a lot.

After two previous attempts to bring member’s bills through the House, I have to admit I was quite surprised at how disheartening it was to have them shot down by the Government of the time, knowing full well what the numbers would be before you went in. It was actually incredibly surprising how disheartening it was. Conversely, I’m quite stoked and—

💬 Todd Muller: Stoked?

Stoked—stoked. A chap is allowed to be stoked with an outcome.

💬 Brett Hudson: You’ve still got a few weeks to go on the waka, mate.

So I put it, to Mr Hudson in particular, that now’s not the time to play politics. I put it to the Opposition that those lines in the bill are directions, so there’s no call to guarantee returns of investors. There’s no predetermined outcome. There is no call to lower fees tomorrow. You made arguments that were reasonable in and of themselves, despite the fact that there was no attempt from this bill to do those things.

The experts are being asked to look at it and, I say again to the members opposite, it could not be more timely. I acknowledge the contribution from Parliamentary Under-Secretary Wood, who gave an eloquent summary of the situation using real data, and just spoke to the reality of the situation as to why we’re here at this point.

The bill is a different way forward, but it is a consultative way forward. It is an inclusive way forward, and it actually gives the members opposite a very real means to engage and to have a say on the outcomes of this legislation. I give them credit for acknowledging that they recognise themselves that there are issues in the KiwiSaver industry and they need to be looked at. So thank you for at least acknowledging that.

I hope that my interpretation of the numbers is correct and that we move forward proudly and look to a year-long process where we can take stock of the industry. So I’m proud to support this bill. Thank you very much.