Let’s get the Government to run it?

For some years Winston has been advocating some form of compulsory superannuation – he advocates state management of a fund. KiwiSaver is an attractive political target.  So easily sensationalised due to the growing fortune building within the financial services industry – (predominantly banks $22 billion) and the general lack of financial literacy thereby enabling only superficial debate.

Some people may well recall the Roger Douglas / Norman Kirk product of the 70s and how easily Robert Muldoon was able to create opposition to the concept in such vehemence as to overturn the Labour Government of the time and obtain the mandate for the discontinuance of the compulsory ‘at work’ scheme.

The state service has for years had its own retirement schemes – formerly defined benefit – latterly defined contribution.  3% employee contribution, 3% state contribution.

Different sectors of state services have had bespoke arrangements – Army, Police, Judiciary and Parliamentarians.

Helen Clark’s government introduced both KiwiSaver and the NZ Super Fund – the primary role being a safety net for the growing aged (baby boomers) and diminishing tax paying ‘at work’ population.  The theory being that the existing National superannuation payable to all New Zealanders at the age of 65 would be ultimately unsustainable. I guess the rationale for KiwiSaver being – why not let all NZ’s have what the public servants have enjoyed for years.

Having been part of the industry through this time frame has been a roller coaster ride.  Changes of government, bull markets and bear, mergers and acquisitions, the development of a managed funds industry, the diminution of legal and accounting firms (as part of the finance supply cycle), regulation, the transition of commission to fees based advice, the banking industry development from relationship to transactional services (driven by technological change).

Politicians can’t help themselves.  They change things.  Pots of money attract them.

I quote Oliver Hartwich – his condemnation of economists as recipients of Nobel prizes in economics.  “Give the prize to politicians who demonstrate a rudimentary understanding of basic economics (hard to find – we may have to turn it into a biannual or even rarer prize)”.

Across the Atlantic, Barack Obama has introduced compulsory Health care – a kind of public private scheme.  The problem with government compulsion, however well intentioned, are the unintended consequences.  Employers have reacted by reducing employees contracted terms, thus escaping (probably in the short term) the employer mandate.

The employer mandate is a penalty that will be incurred by employers with more than 50 employees, if they do not offer health insurance to their full time employees.  You can imagine now the reaction in the US as employers miffed and financially disaffected – laying off workers or reducing their employment to ‘part time’ in an endeavour to manage down costs.

Back home, well intentioned (I give them the benefit of the doubt) politicians are focused to the ‘fees’, impartial KiwiSaver providers have been paid – and are likely to be paid for the management of various assets within the private funds (fees of $325m – over 5 years).

The problem with the politic of envy especially when it removes the profit motive is the resultant quality of supply – in this case advice.  As Carmel Fisher pointed out in her Sunday Star Times article – “Why would one government employed fund manager necessarily be better than 20 competing fund managers – are public sector workers automatically superior to their private-sector counterparts?”  When comparing fees charged by the managers of the NZ Superfund (managing $19 billion) their charges were $113.7m for one year.

To achieve world class results investment managers need world class best practice standards – investment best practice advice does not come cheap and that’s the rub.  If the public doesn’t have the capability to differentiate between good and bad advice, then any old advice will pass muster. Who you listen to therefore does not matter – the most acceptable story delivered at your level of knowledge or through your biases and beliefs – will win your approval and ultimately your vote.

The public needs to be mindful when politicians and media compete for news.  What’s the motive.  We know with capitalists (fund managers) it’s to make a profit – and to do so they need to compete against similarly focused suppliers and survive market place demand.  The problems arise when governments mismatch their role and politicians attempt to achieve personal ideologies through thinly disguised obfuscation.

The information provided in this blog is not intended to be a substitute for professional advice. You may seek appropriate personalised financial advice from a qualified professional to suit your individual circumstances.