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1.2 Motivation of this Review

The KiwiSaver Act sets out to achieve its legislative objectives in the accumulation phase by enabling the establishment of privately-run schemes to facilitate individuals' saving, principally via workplace-based contributions channelled to the fund managers by Inland Revenue. The Government also provides significant financial subsidies[3] to encourage membership and ongoing contributions which are also paid from Inland Revenue to managers.

The model selected for KiwiSaver involves private providers of fund management services competing to manage members' contributions (and the Government KiwiSaver subsidies) subject to the constraints and conditions in the KiwiSaver Act and other applicable financial markets and securities regulations. In addition to creating a market for KiwiSaver funds management, the Government has created a framework of additional interventions in that market related to the administration of the scheme, the auto-enrolment function, conduct regulation of providers, financial subsidies to encourage membership and the appointment of default provider funds for individuals who do make an active choice of fund manager.

Various reviews of KiwiSaver have been conducted since its inception, however, no recent reviews have focussed on the productive efficiency of the KiwiSaver fund manager market in meeting the aims for the scheme, nor has any review examined the allocative efficiency of KiwiSaver in capital markets. We have three motivating factors for this study: providing an evidence base to test the primary policy objectives for KiwiSaver (see below 1.2.1), documenting the effects of KiwiSaver on capital markets (see below 1.2.2), and making comparisons between KiwiSaver and international equivalents (see below 1.2.3).

1.2.1  Providing an evidence base to test the primary objectives

The KiwiSaver system is based on assumptions that the private provider market model of competing fund managers with a range of investment choices for individual savers will perform efficiently. It assumes that market discipline will be enforced on fund managers which will maximise consumer outcomes in terms of the service delivery to members, fee levels and the performance of investments. In turn, it is expected that the objectives of the KiwiSaver Act (and other policy objectives) will be met.

In order to test these assumptions it is necessary to understand how the KiwiSaver fund manager market operates (competitiveness and efficiency) and also how returns and asset allocations compare.

New Zealanders have been contributing savings to KiwiSaver schemes for over seven years. The fund management market has grown in significance and maturity. However, although market studies have been undertaken,[4] policy makers could improve their understanding of the dynamics of the KiwiSaver fund manager market. In particular we have sought to improve knowledge of:

  • Analytical data on funds management market (size of fund managers’ portfolios, membership numbers and market share.
  • The competitiveness of the KiwiSaver fund manager market, including with regard to price, service and barriers to entry and whether this leads to optimal outcomes for KiwiSaver members (in the form of lower fees and better service).
  • The competitive dynamic of fund managers across fund investment style and status (default/non-default).
  • The profits of fund managers: how these compare internationally and the responsiveness to market pressures.

In respect of the asset allocations of KiwiSaver funds, gaps exist in our knowledge of:

  • Analytical data on the dispersion across asset classes.
  • Performance (asset appreciation) of KiwiSaver as a whole relative to appropriate benchmarks.
  • The efficiency of the supply of financial capital intermediated by KiwiSaver.

1.2.2  Documenting the effects of KiwiSaver on capital markets

In light of the second order policy goal associated with KiwiSaver to deepen New Zealand's capital markets, we found it necessary to document the degree of understanding the impact of KiwiSaver on domestic capital markets. To the extent possible, we have sought further information on:

  • The implications in domestic capital markets from KiwiSaver growth.
  • Effect of increased saving via KiwiSaver on equity markets and individual (listed) firms.

Evaluation and analysis of the early years of KiwiSaver has already been carried out. A Ministry of Economic Development and PricewaterhouseCoopers (2008) study comprehensively reviewed the effect of KiwiSaver in relation to the superannuation and managed funds market and the wider financial services sector. A later Ministry of Economic Development (2010) study used the same framework and surveyed 24 KiwiSaver providers reaching a view that KiwiSaver has had little impact on capital markets in New Zealand.

1.2.3  International context

Furthermore, international trends in pension policy have encouraged us to improve our understanding of the KiwiSaver fund management system and asset allocation trends in the New Zealand economy. The Australian Financial System Inquiry has taken particular interest in the Australian superannuation system, in particular the levels of fees and suitability of investment options for savers. The Inquiry noted in its July 2014 Interim Report[5] and December 2014 Final Report,[6] that the efficiency of the Australian superannuation system was undermined by very high fees and a distinct lack of competition between fund managers on price. Other policy reviews of capital markets policies have also identified the growing significance of direct contribution pension funds in financial systems of developed countries[7] and in respect of long-term investment markets.[8]


  • [3]A $1,000 “kick-start” payment upon opening a KiwiSaver account (that applied up until 22 May 2015 and was removed at Budget 2015) and annual member tax credits (MTC) at 50c for every $1 contributed up to a maximum of $523.
  • [4]See Ministry of Economic Development and Pricewaterhouse Coopers (2008); Ministry of Economic Development (2010).
  • [5]Australian Government Financial System Inquiry (2014a).
  • [6]Australian Government Financial System Inquiry (2014b).
  • [7]Pricewaterhouse Coopers (2013).
  • [8]The 2014 G20 had a particular focus on improving the capabilities and institutions for investment, including facilitating the long-term financing from institutional investors such as pension funds.
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