1. Compliance
  2. KiwiSaver
  3. Questions and answers

Questions and answers

Q: What are the 'unreasonable fees' restrictions in the KiwiSaver legislation?

A: No KiwiSaver scheme trustee, manager, promoter or other person who charges a fee for services to provide that scheme may charge a fee that is 'unreasonable'. Regulations 10 to 12 of the KiwiSaver Regulations 2006 set out the process requirements and relevant criteria for the Financial Markets Authority when considering whether a KiwiSaver scheme complies with the requirement that fees not be unreasonable, and there are KiwiSaver guidelines which provide additional information.

Scheme fees must be disclosed in investment statements and all fees will be assessed in line with the legislation when a provider applies to register a scheme. FMA must also be notified of all fee increases.

Fees charged by advisers for advice about particular KiwiSaver schemes might in some cases (e.g. where the adviser belongs to a scheme's sales force) be 'services relating to the provision of' KiwiSaver schemes and therefore be subject to the unreasonable fees restrictions. It is not appropriate in any circumstance for advice fees to be deducted from members' KiwiSaver accounts.

Q: Do employers have to inform the Financial Markets Authority when they select a preferred provider?

A: No, an employer is not required to advise FMA when selecting the employer's chosen KiwiSaver scheme for employee automatic enrolment purposes.

Q: How should payments of insurance premiums be treated?

A: Section 68(2) of the KiwiSaver Act 2006 provides that payments for 'other things' like life insurance premiums do not count as contributions under the Act, or towards a contribution rate, and cannot be paid via Inland Revenue. This means that, for example, where such payments are made by an employed member they must be additional to the employee's chosen 3%, 4% or 8%.

Q: Can scheme providers substitute their own wording in certificates and statements?

A: In some cases providers of KiwiSaver schemes have substituted their own wording in schemes' annual reports for the statements and certificates required under the KiwiSaver Act 2006. As a result, the meaning of some statements and certificates has changed, requiring the regulator to seek clarification and replacement certifications in some situations.

For clarity trustees should ensure that they use the wording required for each certificate or statement that is specified in the KiwiSaver regulations.

Q: What are the requirements regarding amending KiwiSaver participating employer agreements?

A: Any amendment to a participation agreement for a KiwiSaver scheme (i.e. an agreement between the scheme provider and an employer which determines some of the conditions on which the employer's employees may be members) must be made in line with section 129 of the KiwiSaver Act 2006, with a copy lodged with the Financial Markets Authority within 14 days of execution.

Q: What are scheme providers' obligations relating to unpaid and short-paid employer contributions to KiwiSaver schemes?

A: The Superannuation Schemes Act 1989 requires the trustees of a superannuation scheme to state in the scheme's annual report whether all contributions required to be made to the scheme under its trust deed have been made (Clause 1(d) of Schedule 2 of the Act).

By contrast, the KiwiSaver Regulations 2006 only require providers to state on an annual basis whether or not they have applied contributions received for each member in line with the trust deed.

However, legal advice received confirms there is a general duty on providers to reconcile amounts that have been received against amounts that the providers reasonably expected to receive from each employer. Where the two amounts do not match up, the general duty of providers is to then follow up this discrepancy and take appropriate action to address the discrepancy.

Whether providers ought reasonably to be aware of contribution shortfalls, and the appropriate action to take in respect of any discrepancies, will depend on the circumstances of the scheme.

The key point is that the relief provided under the KiwiSaver Regulations, when compared with the annual reporting requirements in the Superannuation Schemes Act 1989, does not go so far as to relieve scheme providers entirely from their general obligations.

Q: When may the Financial Markets Authority approve transfers without the consent of members?

A: Members generally cannot be transferred between KiwiSaver schemes without their prior written consents (section 119D of the KiwiSaver Act 2006). However, sections 119G and 119H of the Act enable a KiwiSaver scheme provider to apply to FMA for approval to a proposed bulk transfer between two KiwiSaver schemes without members' written consents.

The terms and conditions of the scheme to which members are to be transferred must be no less favourable than those of the existing scheme, and certain other conditions must be met. FMA has not issued guidelines as it wishes to consider any applications on a case by case basis. However, in relation to the 'no less favourable' requirement, providers should note the guidance set out in APRA Superannuation Circular No. I.C.4.

Members must be notified that they have the right to make a submission to FMA about the transfer proposal and we would expect them to be given no less than 28 days to make that submission. We would also expect that members will be given sufficient comparative information, including about fees, investment options and member services, to enable them to make their own value judgements.

The provider of the receiving scheme must also meet its Securities Act 1978 responsibilities with respect to offer documentation.

Q: What guidance does the Financial Markets Authority have on the tests used to determine what is an 'adverse effect' on members, and what is 'material', when deciding whether to approve a transfer without requiring member consents?

A: Transfer approval applications are considered on a case by case basis and FMA must consider any member submissions received. Under section 119G(4) of the KiwiSaver Act 2006, FMA may decline to approve a transfer if it considers the transfer would adversely affect the interests of all or any members of the old scheme in a material way. When FMA considers whether there is an 'adverse effect' and whether it is 'material' it is required to consider all aspects, including how areas such as fees and investment allocations compare.

Q: What documentation will the Financial Markets Authority require from the scheme provider to enable transfers without the consent of members under sections 119G and 119H?

A: The documentation required is a formal approval application, attaching copies of the transfer notice communications sent to members of the old scheme and compliance certificates from the trustees of both the old and the new scheme. Drafts of the proposed transfer notice communications and the proposed formal application to FMA should be referred to FMA for informal comment before they are finalised and sent.

Q: Where can I find statistics on KiwiSaver schemes?

A: These can be found in the Financial Markets Authority KiwiSaver Annual Reports to Parliament (under the statistics heading in the Appendices).