New governance rules for KiwiSaver
Market players say real consolidation of the KiwiSaver sector is no closer despite cost pressures forcing some smaller players to wind down or sell up.
There had been speculation that the anticipated concentration of the market would kick in with today's introduction of new governance rules requiring KiwiSaver providers to use an external trustee. The moves means extra compliance costs and fund manager MSF is already in the process of winding down its KiwiSaver scheme because of this.
It was thought it may trigger further amalgamation because in theory, the more scale a provider has, the more they can drive down costs. That would ultimately mean cheaper fees for savers.
Currently there are about 40 providers in the market, offering about 130 different retirement saving products to the 2 million New Zealanders currently enrolled in KiwiSaver.
But Chris Douglas, co-head of Australasia fund research at Morningstar, believes the new rules will only materially affect a limited number of smaller players.
“It's highly unlikely we'll see half a dozen providers wound down over the next six months,” he said.
And the incentives to consolidate also only really kick in with large scale mergers and acquisitions, he said. AMP Capital's takeover of Axa last year is one such example, with the two KiwiSaver schemes in the process of merging.
Added to the mix is the potential sale of Tower to a competitor, but they would need deep pockets to pay for it. Guinness Peat Group is selling its 35 per cent stake in the firm and any buyer would have to make an offer for the remainder of the insurance company under New Zealand's takeover rules.
Fisher Funds head Carmel Fisher said consolidation should not be a goal unto itself as there is no guarantee that fees will fall dramatically due to the limited size of the market.
She said with a population of just 4 million, New Zealand lacks the scale needed to match the low fees seen in larger markets such as Australia even if significant mergers occurred.
Also, consolidation would likely result in fewer choices for savers looking outside the six providers in the default scheme.
“Fees are important but so are returns,” she said. “Economies of scale can be had without being a giant. We don't need to snap up one person out of every four.”