Government’s ‘game theory’ tactic promises cascade of KiwiSaver fee cuts
KiwiSavers can expect a reduction in fees following the Government’s implementation of “game theory” according to a KiwiSaver provider. The government is expected in May to announce which of the nine providers will keep their status.
The default providers are Mercer and Westpac, Fisher Two, Kiwi Wealth, Booster, Bank of New Zealand, AMP, ANZ, and ASB. The government is set to allocate users to the providers if the users do not choose a provider in the first place.
Since its launch in 2007, the providers have had smooth and profitable sailing. By the end of September, the nine default providers had a combined $10.4 billion invested in them by the public. As such, any provider that will its status is likely to lose its users to its rivals.
One KiwiSaver provider said that the government is implementing the game theory tactic to force them to cut fees. “This is their big shot to change industry behavior,” the source said. Since its launch, fees still remain a contentious issue with the former commerce minister Kris Faafoi saying that fees would be a crucial factor in deciding which provider would retain its status.
However, some providers have cut fees such as Westpac, AMP, and Mercer. The $10.4 billion default funds are termed conservative funds with the largest share being invested in cash and bonds. But by November, the funds are expected to be balanced with the largest share being invested in shares.
While not all default providers have performed equally well, most market participants don’t expect them to lose their status. “I don’t believe the Government will say to any of them, ‘You’re no longer a default provider,’” said KiwiSaver researcher Clive Fernandes from National Capital.
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