Editrorial: KiwiSavers need protection

OPINION: Whether you were a fan of the last Labour Government or not, it is a fact that Helen Clark and Michael Cullen left the country a great legacy in the form of their KiwiSaver initiative.

The voluntary pension scheme was introduced in 2007 and was aimed at boosting our poor savings rate by giving workers easy access to an alternative workplace savings scheme. KiwiSaver was not designed to replace national superannuation, but to give workers the option of turbo-charging it a little. More than anything, it gave workers a clear signal that it was probably unwise to rely entirely on the state in their dotage. The Government put its money where its mouth is and dangled a $1000 carrot in front of KiwiSaver investors and the scheme has been a runaway success. More than 1.3 million New Zealanders have joined KiwiSaver and there is now $4.88 billion invested.

It is a great piece of political thinking and design. Not only does it give people an incentive to save, it has also produced a huge new capital fund for investment in our economy.

The National Party, who no doubt felt obliged to grumble about the scheme while in opposition, has supported the scheme which has to be the ultimate political compliment to Labour. Credit where it is due – KiwiSaver is a cracker.

That said, the events of recent days involving one of the scheme's providers shows it now needs a tweak. KiwiSaver investors can choose one of 33 providers to look after their funds for them or use one of six default providers who are there for investors who are not concerned who looks after their money.

Huljich Wealth Management, one of KiwiSaver's non-default providers – has lost managing director Peter Huljich after he owned up to investing his own cash in his KiwiSaver scheme to top up its returns.

There are two possible explanations for his actions. The first is that he felt obliged to put his own money in to give his investors a fair return. The second is he did it to make it appear the scheme was doing better than it actually was.

Justice Minister Simon Power has promised swift action to look at the way the providers are scrutinised as a result. He is right to do so. There are good reasons why New Zealanders would feel gun shy about investing. Investors have seen sharemarket booms and they've seen busts, and the finance industry company scandal over the past few years has badly shaken confidence.

The biggest problem with KiwiSaver is the broad misconception that it is Government guaranteed. Indeed, a recent UMR Research survey found widespread confusion amongst KiwiSaver investors, including that 48 per cent of KiwiSaver investors believed that it came with a Government guarantee. In reality there is no guarantee and a lax-looking regulatory scheme. A tougher regime to restore the confidence shaken by the Huljich scandal is needed fast.

Kiwis are in love with KiwiSaver for good reason. It would be a tragedy for the country if the romance ended.

- © Fairfax NZ News