New Zealand news – 18/03/1999

Recent reforms of the Swedish pension system may provide some answers to New Zealand's retirement savings dilemma, according to head of the Investment Savings and Insurance Association(ISI), Vance Arkinstall.

Arkinstall says the ISI has presented a study of the Swedish reforms to the new retirement savings think-tank, the Superannuation 2000 Taskforce.

The taskforce, composed of industry, community and political representatives, is researching a range of options for developing a sustainable retirement income policy in New Zealand.

Arkinstall says the investment and savings industry supports the superannuation taskforce, which is a major signal from Government that developing a savings policy is a key priority.

He says Sweden faces many of the same retirement income problems as New Zealand and has made wide sweeping changes to its pension system including the institution of a guaranteed minimum pension, a part state, part privately funded savings scheme and a transitional period before the new scheme takes effect.

While not every aspect of the Swedish system is applicable to New Zealand it offers a flexibility of approach which is certainly worth thinking about, Arkinstall says.

It appears too, that in Sweden, the final changes came out of a process similar to the Taskforce 2000 here, with wide ranging public submissions to all political parties and eventual widespread political acceptance of the outcome.

The Taskforce 2000, however, does not have unilateral political support. Labour, the Alliance and NZ First have all declined to take part.

"The Government may have created this problem by the way they disbanded the previous Superannuation Accord but hopefully Labour and the other parties will join because of the quality of people on the Taskforce," Arkinstall says.

He says the recent SaverPulse survey for the quarter to December 31, 1998 clearly shows New Zealanders are looking for a direction from Government.

The SaverPulse results, produced by Research Solutions and FPG Research, found that 57 per cent favour some form of compulsory superannuation scheme, 87 per cent do not expect the Government to provide them with adequate retirement income and almost 30 per cent have not started to save for retirement.

"The research also revealed that 3 per cent of savers feel they are or will be penalised for making their own provisions. It is not clear what is driving this feeling, which first appeared in the September quarter, but it may be a growing awareness that savers at lower marginal tax rates (about 600,000) are penalised by current taxation policies," Arkinstall says.

He says the Government has made no further moves on removing inequities in the taxation of retirement savings since the failure of the TOLIS legislation last year.

The ISI will shortly release a major research paper on investment taxation issues similar in scope to last year's report on retirement income.

"The report will be our view of some tax reforms that if implemented will start to solve some of the problems in the tax system. It will take a balanced view and include some propositions which may benefit the savings industry and some which may not," Arkinstall says.

A quantum leap in wrap accounts

Quantum Financial Solutions (QFS) has introduced a new wrap account to the range of services offered by its network of financial advisers.

Head of Quantum, Paul Arrowsmith, says the wrap account, operating under the proposed business title Quantum Investment Services, uses the services of both the National Australia Bank's Ausmaq system and Grosvenor Financial Services.

"Quantum's national network of advisers provide the distribution channel while the middle office is a joint venture between Quantum and Grosvenor," Arrowsmith says.

"The middle office provides a range of services such as operational management, risk profiles, an investment committee, research of underlying products and other ancillary activities."

He says the structure is similar to that of the wrap account of financial planning firm Rutherford Rede, which uses the same suppliers.

The Ausmaq system, Arrowsmith says, was selected by Quantum after exhaustive research.

"We looked at almost every master trust from the position of 'what do we want to do?' and decided Ausmaq suited our goals," Arrowsmith says.

"It is very robust and because it is a banking system it offers a range of services such as eftpos and money transfers."

He says Quantum has plans to offer its clients a private banking service in the future which Ausmaq has been designed to handle.

"There is no other system in New Zealand which has Ausmaq's banking abilities, its stretch of budget or the same degree of future opportunities. It operates in Australia too and we have a huge interest in cross border transactions," Arrowsmith says.

"If a bank such as BNZ uses Ausmaq it must be good."

Terry Millett, head of BNZ Financial Services Group, says Ausmaq is well on the way to attaining its target of managing at least $500 million.

"The BNZ wrap account has about $130 million run by Ausmaq and with the other providers it has a total now of around $250 million. That's pretty good after operating for only six months," Millett says.

"It's great news for the industry that we have at least one good platform."

The Quantum wrap account should be on-line within a month and available to clients of Quantum advisers. Quantum is majority owned by National Mutual with the remainder owned by its advisers.

Arrowsmith says that while several details have yet to be finalised, an information memorandum is ready to be sent out to clients explaining the wrap account.

"There are massive legal requirements which have to be finalised and we are still negotiating fees with one or two product providers but we should be able to take the wrap account to the market within three or four weeks," Arrowsmith says.

He says all Quantum advisers have been trained and understand the "great client benefits" offered by the wrap account.

"Wrap accounts are the future but they have to continue to evolve as new tax rulings come in and new products reach the market," Arrowsmith says.

"They are also expensive to develop so they need a company with a lot of cash behind them."