KiwiSaver Bill

I am pleased to engage in Part 4 of the KiwiSaver Bill. Before the dinner break there was a very interesting situation. My good friend from New Zealand First Doug Woolerton had made some interesting comments in the debate. He spoke about the desire to have KiwiSaver rolled out to lower-income New Zealanders, which is something the National Party fully supports. Interestingly enough, he made the point about how difficult it is for lower-income New Zealanders to have enough money—enough after-tax dollars—in their hands. He did not go so far as to mention that if Labour had not stolen $882,000 to pay for its election campaign, New Zealanders would all have a little more. But he had an opportunity, when the rubber hit the road, to vote to have a lower contribution for New Zealanders who earned a little less and could not afford, initially, to put their money in.

I was shocked, because the vote on that amendment was much closer than I thought it would be. Had ACT been in the Chamber, the vote would have been 61-60—that is how close it was. When I went upstairs earlier, Jeanette Fitzsimons was there. She said to me: “Mr Key, I thought it would be Mr Woolerton who would have voted for that—caring for those lower-income New Zealanders.” I said: “Jeanette, my apologies to you, then, on behalf of New Zealand First and Doug Woolerton. He talks tough when he is on his feet in the House, but the truth is that he did not want to support lower-income New Zealanders to be able to afford to put 2 percent in.” It took the National Party to front up.

That is why National will be on the Government benches in less than 2 years’ time. The people of New Zealand know a good thing when they see it. One thing that they know is not a good thing is the KiwiSaver Bill, and they know this for a number of reasons. Within the bill there are a number of substantial issues. Those issues are partly around the bill’s complexity. One of the things Part 4 does is provide for a default provider. The way a default provider works is that if a person goes to his or her employer and does not specify whom he or she want the funds to be managed by, then that person is allocated on a rotation basis of the default provider. At this stage we do not know who the default providers are.

It was a very interesting exercise on the Finance and Expenditure Committee. Some of my fellow members on that committee, including Mr Foss and Mr Tremain, who are very hard-working members, and Dr Smith, who is an incredibly hard-working member, had some really interesting questions to ask about default providers. They failed to get the sorts of answers we would have liked. Many of those default providers went to quite considerable expense, including one of them who told me that the time scale for the application—the request for proposal—to be a default provider was so tight that the default providers could not courier the documents down and be sure they would get there. They flew a person from Auckland, with the documents. They then put that person in a taxi at Wellington Airport—this is an absolutely true story. It turned out that the roads were so badly maintained under a Labour Government—those taxpayer dollars were being used to prop up its re-election campaign as opposed to fixing the roads of Wellington—that the taxi could not go the normal way, and the person ended up paying $228 for a taxi ride to get the document out to Lower Hutt, where it was delivered. That is what the default providers went through, and they know that it was not worth putting the time and effort into that expense, unless the bill was changed.

We know from Michael Cullen that the first round of changes came when his back was to the wall last week. My prediction is that before the next general election, substantial changes will be made to KiwiSaver, because the Government knows that it will not work in its current form; it knows that the private sector and the default providers that are covered under Part 4 of the KiwiSaver Bill have gone to tremendous expense to try to become a default provider. Those default providers know that that is a waste of time, a waste of money, and a wasted exercise, unless some changes are made.

In fact, tonight, during the early part of the dinner break, I wandered over to the new Treasury building—another mausoleum being built by a Labour Government that houses one or two bureaucrats in every second building in Wellington. There was a huge celebration when the Prime Minister was there to launch yet another building. There I ran into one of New Zealand’s most pre-eminent fund managers—someone who is definitely involved in KiwiSaver. When I spoke to that person—whom I will not identify, for good reason—that person said to me: “It’s a disaster, we can’t understand it, and it’s only worse if you look at overseas tax bills.”

New Zealand First is pleased to be supporting Part 4 of the KiwiSaver Bill.

Hon Members: Explain why.

R DOUG WOOLERTON: I am happy to explain why New Zealand First did not support the amendment put forward by Jeanette Fitzsimons. People should know the way in which Parliament works. This is an example of the informality that the public does not see—the friendship part. Craig Foss came to see me and said: “Doug, are you going to support Jeanette Fitzsimons’ amendment? It’s bunkum, of course, but are you going to support it?”. I said: “Craig, you shouldn’t talk about Jeanette’s bill like that. She is serious about these matters.” He said: “I can’t help what she thinks, but I’m telling you it’s bunkum.” I said: “OK, fair enough, we’re being honest with each other. Look, mate, I can’t support it, because we’re happy with these provisions.” The select committee hammered out the bill. Unfortunately, a couple of people got the jump on us, and there now is a mortgage diversion scheme. But there are tax incentives for employers, which we agree with. I told him that I could handle change as much as any man, but three changes were too many. I told Craig that we could not support the amendment.

People should know that he then said: “That’s OK, mate. We just want to look good in the eyes of the less well-off. If you had said you were going to support it, we would have run to the hills, mate.” He added: “You know how it works in this place—the look is everything.” I know that John Key agrees with that, and I know that many of his bench mates agree with that. One needs just to look at him to see—the look is everything.

People need to know, in the spirit of comradeship and all the rest of it, that I am happy to admit I did not go along with the suggestion by the National Party and others that perhaps it was pushing the boundaries a little bit to have the default providers’ bids—as I call them—come in before the bill had actually come into the House. I did not know about the taxi; I have to admit that is something new.

John Key: It’s true.

R DOUG WOOLERTON: I am not saying it is not true. The member is a man of honour, because the Speaker told me so. I did not know about that, but it does not surprise me, at all. It shows the eagerness with which people are flocking to administer KiwiSaver. But I must say I was a little bit concerned, so I was happy that New Zealand First was mentioned as one of the parties that was concerned we had moved a bit fast on the default provider issue. I think we all tried, as a select committee, to have newer entrants to the financial market become involved—more entrepreneurial entrants, perhaps. But, sadly, it does not seem that that will be the case. How many new entrants will we end up with—eight, or something like that?

John Key: Four to six.

R DOUG WOOLERTON: It seems that they will be the old, big companies that have been around for years. Personally, as a dynamic member of a dynamic new party, I would like to give encouragement to any new players on the block. We could not achieve that, so I was happy to have my name put with those who showed a little bit of concern.

Mr Key is a gambling man. As a Presbyterian of Scottish heritage, I cannot afford to be, and it is against my religion and all the rest of it. But Mr Key can afford to be a gambler. I am not going to take up his challenge, but he bets that changes will be made to the KiwiSaver scheme before the next election. He is probably right. I must say that when I get the Hansard of the debate, I will go through it to check, but I suggest that I said that in every little speech, on every little part of the bill. The scheme is designed to have changes made to it, and if it is in the interests of the public to change it, changes will be made.

I rise to speak to Part 4 of the KiwiSaver Bill, which gives the specific detail of the KiwiSaver scheme. I welcome Minister Clayton Cosgrove to the chair and say that I am looking forward to his reply on this part of the debate, just to demonstrate his knowledge of the KiwiSaver Bill. It will be fascinating.

Lindsay Tisch: I raise a point of order, Madam Chairperson. I do not like to interrupt my colleague, but I think that, in fairness to the Minister in the chair, my colleague should refer to him by his correct name. I know it was an oversight, but I suggest that my colleague might like to refer to him as Minister Damien O’Connor.

The CHAIRPERSON (Ann Hartley): I am sure he will.

CHRIS TREMAIN: Madam Chair, you do not have to demand an apology here: I will withdraw and apologise.

John Key: I think that was one of the harshest things you have ever said about Damien. Your career is over!

CHRIS TREMAIN: My apologies. I come back to where I left off on the KiwiSaver scheme. The deadline has already closed for KiwiSaver scheme default providers. The fact that the deadline has closed already was a key point that came up in the submissions we received in the Finance and Expenditure Committee on the actual time frame in which the bill would be passed.

I want to talk about a couple of submissions the committee received that dealt with the deadlines that have to be achieved in order to get to the point in time where the bill can be implemented. In the submission process, it was pointed out that the implementation time frame is a significant issue. The first deadline we had to overcome was the time by which default providers had to provide their submissions. A couple of submissions stated that the time frame was too short for a successful implementation of the bill. We have the likes of KPMG, Mercer New Zealand, the Financial Services Institute of Australasia, Chatswood Consulting Ltd, Business New Zealand, ANZ National Bank Ltd, ASB group, Comacc Ltd and Superlife Ltd all submitting that the time frame was too short. A number of others went on to say that the time frame, despite its having been moved out to 1 July, would still be too short. A number of submitters believed it should have been moved out to 1 October 2007. ANZ National Bank Ltd, the ASB group, the Meat Industry Association, and others thought it should be moved out to 31 December 2007.

So I have some sympathy for those default providers that have had to put up submissions for this scheme—firstly, because of the initial start time, which I still believe is unworkable at 1 July. The application process they had to undertake was onerous, particularly given the systems that these major providers will have to install in order to deal with the issues of the KiwiSaver Bill, and particularly given that, having put up a submission, a number of significant changes have been made to the bill as recently as last week. So once again these submitters are having to deal with changes being made on the hoof—last-minute policy to be enacted within a deadline of 1 July. And here we are expecting this KiwiSaver Bill to have credibility in the marketplace. I ask the Minister to say whether he thinks this is genuinely achievable—whether the providers will be able to achieve this date, delivering credibility into the marketplace and ensuring that as many employees and employers as possible get on board with the bill and take it forward.

Despite those complaints about the submission time, every fund manager and his dog actually wants to be on board with it. They see it as a huge opportunity, because they see it ultimately turning into a compulsory situation. They see that while in the short term it will cost them some money—they do not see themselves making a lot of money out of it in the short term—in the long haul they see it as being a real winner for them.

I want to talk about some of the conflicting views on the number of applications that were put in. Firstly, the Finance and Expenditure Committee asked to see the terms of reference for the application process. It was unfortunate that we were unable to see those terms of reference until after the deadline had closed, which was somewhat disappointing. Despite this, we believe there were 10 to 15 submitters. But, in saying that, the parameters and time frames were so difficult that as many as 90 percent of the submitters voiced concern about the time frame within which they had to submit. As a result, the date has moved back to 1 July. As I said previously, I am still concerned that that deadline will be difficult to meet.

The actual decision about who will be the default providers will be politically contentious—there is no doubt about that. Who will be the lucky four to six default providers that will be involved in this scheme? We put the question about the number of providers to the Government and it came back and denied that there was a pre-set number.

I found the speech from the New Zealand First member Doug Woolerton to be very enlightening. He is now looking at setting up a good-looking party, because “look” is everything, according to him—substance is a minor detail. We know that the president of New Zealand First is hunting for new leaders for that party. Doug Woolerton must be really quite miffed that he has been overlooked as a good-looking, dynamic potential leader for New Zealand First. But I say to him that he has to show a lot more substance before the public can support him.

First of all, as my good colleague John Key pointed out, he cannot champion the cause of the so-called struggling Kiwis without making sure that this scheme is actually friendly. I find it ridiculous that he simply voted down the Green Party’s 2 percent contribution rate, which would have been an achievable rate. Second, it is very telling that New Zealand First has let us know that it can now handle only two issues—two changes—at any one time. It is quite telling that a very dynamic member is limited to handling two changes.

I want the Minister in the chair, Damien O’Connor, to take a call to explain something. People have just mentioned that the number of default providers might be limited to four to six. The reason is that they might not be able to make a lot of money. But in the long term, if this scheme becomes compulsory, it might be worthwhile. I say to my good colleague John Key that, in the short term, some innovative people might be able to set up a scheme that was quite beneficial. I was looking at the criteria in Part 4 and thinking about whether Taito Phillip Field MP, who is very innovative in providing for his retirement, might be able to fit his scheme in. After all, we are told in clause 99(1)(b) that the “principal purpose is to provide retirement benefits directly or indirectly to natural persons;”. I think his scheme to have people help him build his property more cheaply would actually fit this criterion.

The other thing is that new schemes need an independent trustee, and that is very, very confusing. Clause 99A states that one trustee is named as the independent trustee. But if no independent trustee is named in the application, then a person named in the application can become the independent trustee. It is quite flexible, so I think Mr Taito Phillip Field’s scheme might actually qualify under these Part 4 provisions. His spirit, in terms of saving for retirement, is actually quite innovative. I hope that Part 4, after describing at great length which scheme can qualify as a default provider, actually makes sure those loopholes are not utilised.

The other thing that John Key and Chris Tremain mentioned is that this scheme might become compulsory in time. I think the public should note the fact that New Zealand First embraces it so warmly. Indeed, in 1998 it was New Zealand First’s the Rt Hon Winston Peters who wanted New Zealanders to have compulsory savings—

John Key: Affectionately known as “Spider-Man”.

PANSY WONG: Yes, “Spider-Man”. I actually named the latest tragedy that happened to Mr Peters as “Asian bites back”, but I think “Spider-Man” sounds pretty good. In 1998 the compulsory idea of Mr Peters was voted down by what—98 percent? It was well over 80 percent of New Zealanders. I think this measure is the latest attempt to go there.

I rise to speak to Part 4 of the KiwiSaver Bill. I acknowledge the new Clayton’s Minister in the chair—sorry; the new Minister in the chair—the Hon Damien O’Connor. As I pointed out in an earlier speech, I have learnt much in the last week about how Parliament and the debating chamber work, and about the abuse or lack of process, particularly around this bill. In the last half an hour I imagine I have learnt a bit from the wise experience of Mr Woolerton. I look forward to sitting down with him and having a bit of a yarn at some stage. I also acknowledge again the powerful and vibrant speeches of all the Labour MPs who have endorsed this bill tonight. So far—we are up to Part 4, just over halfway through the bill—we have had a grand total of zero speeches from Labour MPs endorsing what is supposed to be flagship legislation for their final term in Government.

Part 4 deals particularly with various superannuation schemes, and with what happens to KiwiSaver schemes—more with the operational side of things. During the Finance and Expenditure Committee I recall quite a lot of discussion about—and other speakers have spoken of this—the default providers, etc. This bill will drive significant changes to the New Zealand finance industry. Earlier speakers, including myself, have touched on the default providers and commented about the abuse of process around that provision. I think members will see some interesting joint ventures amongst, say, insurance companies and banks, all absolutely clamouring to be one of the default providers. As I noted in an earlier speech, Mr Cullen has noted that it would be very, very difficult not to make money as a default provider.

We do know that this bill will drive almost every fund, and every small organisation, to be KiwiSaver-compliant. No one is addressing the cost to those small funds and small institutions, etc. of becoming KiwiSaver-compliant, but they have been driven into a corner here. Particularly with the amendments tabled last Thursday, they virtually have to become KiwiSaver-compliant. What does that mean for small credit unions around the country? There are quite a few in Hawke’s Bay. They are doing the right thing, but they are struggling in the face of competition from the larger Australasian banks. What about our small local building societies? Again, this bill will actually harm those building societies. They will struggle to cope with the changes and the compliance issues that they bring.

Being a default provider brings massive first-mover advantage to anyone who wants to participate and try to become a default provider. As noted earlier, there will be four to six default providers. Funnily enough, if members think about the large financial institutions around the country, they all begin with the letter “A” or they have a series of “A”s in their name. I ask members to think about what will happen in the real world when Joe or Jane Bloggs bowls along to a new job and wants to opt in and select a default provider. Whom will he or she select? It will be like what happens with “AAA Plumbing”. People will not have thought about their choice too much and they will go to the top of the list. They will guess that the providers have all done the trust deed and are OK, so they will tick the top one under “A”. Then there will be ones starting with “AA”, then “AAA”. It is absolute nonsense. That is the kind of real-world mesh test that this legislation will come up against and fail.

It is interesting also to note from some of the submitters, particularly the very large players, that they are not going into KiwiSaver because they want to be part of KiwiSaver but because they see it as an awesome but loss-leading opportunity to market themselves to an entirely new group of customers or potential customers, as they try to parade their wares to them. Let us remember that 1.1 million new job events every year will give those players 1.1 million opportunities to sell their products. What kinds of products will those large multinationals try to sell? They will try to sell insurance products, and there was some wide-ranging discussion about that at the select committee. There will be various forms of cover, and there may be some deals with employers. Providers may say to employers that if they select a particular scheme for their employees, they will be given a 10 percent discount on fire and accident insurance for their buildings. Of course, employers will take that. Does that actually serve employees to the best advantage?

There is another very, very interesting little item that people will try to solve.

I rise to speak to Part 4. It has been interesting to hear a number of Ministers wax lyrical about what KiwiSaver will do. One of the comments made regularly is that the captains of the finance industry are very keen on it, they are enthusiastic about it and they think the Government’s proposal is a good idea. I think Ministers need to understand that those involved in the finance industry have no choice. Most of them who have made some positive comments about the KiwiSaver scheme have done so because they do not want to be left behind. They are interested in this section of the bill, which is all about the processes used to select the default providers. Those firms do not want to be left behind because they see this as an opportunity to take on a serious amount of business.

One of the things that has concerned those involved in the finance industry has—of course—been the time delays with the development of this bill, but also some of the time frames. Everybody who had a look at them said they would be unworkable. It has been interesting that in the eleventh hour, the Government has been forced to heed those calls for extra time because what is currently before the industry is nothing more than a dog’s breakfast. It is going to be a nightmare if this thing is rushed. One of the things that concerns many on the Opposition side of the House is that when Kiwis start to look at this as an option, there cannot be a rushed system with firms keeping to a Government-placed deadline that is unworkable.

Another concern to those in the industry relates to some of the changes made in just the last couple of weeks—the miraculous inclusion of a mortgage diversion section to KiwiSaver. They argue that in order for them to be able to provide this service to Kiwis at a reasonable rate and one at which they can make a profit, there has to be a maximum number of transactions. The more transactions there are, the more costly it is for them to provide this service. In the last 2 weeks the Government has brought in mortgage diversion. This means that some Kiwis will ring up and say they want to put some money on to their mortgage, they want to do that regularly, or whatever decision they might make. That increases the transactions involved in the scheme and therefore the cost. Likewise, there is the cost of contribution holidays. The stopping and starting of payments makes the system more complex than it needs to be and also more costly to run.

A lot of firms have looked at this, and I think they are banking on a long-term thought that this could be compulsory. Although the Government is looking at Australia and saying that New Zealand could have some of the positive things that the Australians have, it will not be the same. The Australians have a scheme that is compulsory; the payments go out on a regular basis; there is no stopping and starting or opting-in and opting-out. There is not the complexity of KiwiSaver. The number of firms involved is set and they can calculate what they are going to make out of it.

The other point that is really important is that if tax breaks are provided to one scheme—the KiwiSaver scheme—then that inevitably creates an unlevel playing field for all other kinds of schemes that aim to do exactly the same thing, which is helping New Zealanders prepare for their superannuation. The Government says it wants a scheme that Kiwis will use, but in this way it is giving KiwiSaver the advantage vis-à-vis all sorts of other superannuation schemes. That does not make sense. If the Government wants to deal with the tax issue in superannuation, it may as well do it with all the schemes—that is, keep the rules the same and the products the same, so they can be compared. At the moment the Government is making KiwiSaver stand out on its own: “Be part of this scheme and you’ll get a tax advantage. Be part of some other scheme, and you won’t.” That will not provide fairness for those Kiwis who have done the right thing by providing for their superannuation, without the help of this scheme.

It will also put some other company schemes on the back foot. Some companies have been providing superannuation for their staff members for a long time, but perhaps because staff cannot pick up their superannuation entitlement and take it somewhere else, their scheme will be treated differently, as well.

I shall start by making a number of observations. The first one is that only one Minister—in fact, only one member of the Government—has stood up and taken a call in support of what the Minister of Finance and Prime Minister are trumpeting as an outstanding scheme. I see that Mr Jones has just walked in, and I know he is a man of integrity. He will stand up and tell the Committee precisely what he thinks, but I would be surprised if an independent and clear thinker like him would be supporting this scheme. But at least he will stand up and take a call. I repeat that other than one Minister, not one member of the Government has stood up and taken a call in support of this legislation.

The second observation is that Part 4 has 64 pages. They deal with process but very little effort has gone into making sure the scheme, per se, will achieve its objective. My colleague Katherine Rich correctly drew the Committee’s attention to the compliance costs hidden in the scheme the way it is constructed now. I think Mr Woolerton acknowledges his assent, because he knows that is right.

While I am mentioning Mr Woolerton, I want to put right for the record a conversation that he and Mr Foss had earlier. Mr Foss tells me that the way Mr Woolerton has portrayed it is not exactly accurate. Mr Foss went across to Mr Woolerton and said: “You’ve just made a very telling speech demonstrating that you’re in touch with poorly paid New Zealanders, and here’s a chance for you to put your money where your mouth is. I suggest that you live by your convictions and vote in support of Jeanette Fitzsimon’s amendment.” Mr Woolerton said to Mr Foss: “You really think I should do that?”, and Mr Foss said: “I think you should, because that’s what you believe, isn’t it?”. Mr Woolerton said: “Yes, it is but I’m not sure the boss would agree with me.” The way Mr Foss tells it, he said: “Well, if you want to be leader you’ve actually got to be more decisive. You have to take a risk and do what you think is right, then others will follow.” Unfortunately, Mr Woolerton failed at the first hurdle because, despite his conscience telling him that he should look after poorly paid New Zealanders, he let that opportunity slip. So I am just putting that right for the record.

Let me turn my attention to the default providers. Yes, providers are flocking to the scheme, because they sense opportunity and they sense compulsion. That fact should not be confused with them thinking the scheme is sound. In private conversations with some of the providers that I know on a personal basis, I have been told that they think it is not sound. Mr Key and other speakers have already alerted the Committee that there will be changes to the scheme before the next election.

One has to ask why we are rushing this. What sense does it make for default providers to apply before they see the terms of reference? I see Mr Copeland over there with his head down. He was very keen—behind closed doors and outside the select committee process—to do a deal with Michael Cullen. Maybe he will seek a call and explain why the terms of reference were not made available until after the close date. That does not make a lot of sense to me. Why are these default providers rushing in? As I have said, it is because they see this scheme as being compulsory.

I move, That the question be now put.

The question was put that the amendments set out on Supplementary Order Paper 52 in the name of the Hon Dr Michael Cullen to Part 4 be agreed to.