Capital Markets 2029 Report – Funds industry recommendations
The Capital Markets 2029 report, released this week from an industry-led working group and sponsored by NZX and the Financial Markets Authority (FMA), identifies ideas to improve New Zealand’s capital markets.
The report takes a 10-year view and highlights the vital role of our capital markets in supporting the growth and productivity of New Zealand.
Who needs to read it? Why?
The report proposes significant changes to KiwiSaver and many other aspects of the capital markets. Anyone involved with KiwiSaver or the capital markets should read the report.
What does it mean for KiwiSaver?
The report recognises that KiwiSaver is the most common interaction New Zealanders have with the capital markets. However, it also identifies areas for improvement.
Section 2 of the report discusses KiwiSaver and proposes a total of nine recommendations relating to KiwiSaver.
Four of these are high impact, prioritised recommendations:
- Allow members to self-direct and invest with multiple providers
- Provide all KiwiSaver members the ability to invest with more than one KiwiSaver provider.
- A full, self-directed KiwiSaver option where members choose their own investments and registered providers hold the chosen investments in a custodian-type arrangement for each specific member.
- Mandate employers’ contributions and a stepped contribution rate option for low income earners
- Mandate employer contributions regardless of employees’ employment contract and decisions to opt out or go on a savings suspension
- Require employers to continue 3% contributions for low-wage earners who have elected a lower contribution rate (or have suspended their contribution) of their salary or wages
- Withdraw KiwiSaver default-provider status and replace with default funds
- Withdrawal of default providers
- Implement an appropriate default fund setting (that considers price, asset allocation, financial education and support)
- Allow all KiwiSaver providers to opt in to meet the default fund requirements
- Reinstate a kickstart payment for members over 18 years old and link with an active choice on fund
- Reinstate a kickstart payment for members over 18 years old joining KiwiSaver. This payment should be conditional on the member making an active choice on their risk category and fund.
Two of the KiwiSaver recommendations are medium impact:
- The FMA should require regular disclosure of underlying investments
- Inland Revenue should collect a full, anonymised dataset down to individual accounts of inflows and balances, and maintain all KiwiSaver aggregated data in one place.
Three of the KiwiSaver recommendations are low impact:
- The FMA should develop a common industry standard calculator for all KiwiSaver providers
- KiwiSaver providers should communicate KiwiSaver’s advantages when first-home withdrawals are made, and a possible life stages product
- Savers should be required to seek financial advice upon certain age milestones and intended withdrawal.
What about other funds?
The Report also contains other recommendations which would affect non-KiwiSaver funds, including:
- Implementation of online financial literacy education for young people as part of NCEA
- Simplifying disclosure for regulated offers
- Establishing a centralised process for compliance on anti-money laundering which market participants can rely on across Australasian capital markets
- Revising wholesale investor definitions (e.g. a broader self-certification regime)
- FMA to issue guidance in respect of the Code of Conduct for financial advisers
- Increasing development of the growth capital industry
- Changing KiwiSaver taxation and addressing other savings tax issues
- Using technology as an enabler.
- NZX to further promote its platform for fund products.
These themes and items are explored in much great detail in the report.
The Report envisions that KiwiSaver will become the main way individuals save for their retirement. It will likely become the largest pool of capital available for domestic investment. Continuous enhancement of the regime is, therefore, important to improve the outcomes of KiwiSaver for participating New Zealanders. However, this will need to be balanced against the advantages of stability and consistency which help fund managers plan and operate their businesses, and investors make long-term decisions on the basis of reasonable certainty as to how their money will be managed.
If you have any questions in relation to the Report, KiwiSaver or the capital markets in general, please contact one of our experts.