Welcome to WSNZ Action 2016

Posted: 1 August 2016

Location update

Please note that we have closed our office in Featherston Street, Wellington for the time being following a scheduled lease expiry. We are currently running Workplace Savings from a shared facility in Mt Eden, Auckland and this is delivering immediate cash savings with no impact on member servicing.

Whether we resume a presence in Wellington will depend largely on the outcome of the current discussions and fact-finding regarding potential integration with the FSC.

Our new contact details are here:

http://workplacesavings.org.nz/contact-us/

Our Chairman David Biegel is happy to receive members feedback, please contact: davidmbiegel@gmail.com, 027 510 7482 or 04 499 7606

Executive director – Owen Gill, owen.gill@workplacesavings.org.nz, 021 961 922

Industry and legislative issues

KiwiSaver home purchase withdrawals and HomeStart grant

There have been some very significant developments in this area of late, including those announced just yesterday and which take effect today.  An overview follows.

Home purchase withdrawal (previous property owner) – removal of income limit

As KiwiSaver scheme providers will already be aware, on 1 July 2016 the KiwiSaver withdrawal rules were changed to make it easier for those who have previously owned property to access their KiwiSaver savings in order to re-enter the housing market.

Until 30 June 2016, in order to be a ‘qualifying person’ for the purposes of clause 8 of the KiwiSaver Scheme Rules (allowing withdrawals for the purchase of a first home) a person who had previously held an estate in land was required by Housing New Zealand:

  • to have realisable assets of not more than 20% of the applicable home price cap; and
  • not to have earned in the last 12 months more than $80,000 (for an individual) or more than $120,000 (for two or more purchasers).

On 1 July 2016 the income limits were completely removed, meaning previous home owners with low to moderate levels of realisable assets can now access their KiwiSaver savings to buy a home regardless of income.

Housing New Zealand must still carry out a determination of the member’s financial position based on the level of their assets, so it remains the case that:

  • in the first instance a previous home owner looking at a home purchase withdrawal must apply to Housing New Zealand (this can be done by way of an on-line application through www.kiwisaver-homestart.co.nz or http://www.hnzc.co.nz/ways-we-can-help-you-to-own-a-home/); and
  • if deemed to have realisable assets similar to a first home buyer, the member must then pass the letter received from Housing New Zealand to their scheme provider.

It is important to note that income caps (as amended today – see below) continue applying with respect to KiwiSaver HomeStart grants – they have been removed solely with respect to withdrawals. 

As the eligibility criteria for each home ownership feature (previous property owner withdrawals and the KiwiSaver HomeStart grant) now diverge, all relevant applicants – i.e. those wanting both a HomeStart grant and a previous home owner savings withdrawal -must now complete two separate application forms.  

Both forms can be either submitted online or downloaded from the Housing New Zealand website (see above) and then scanned and emailed or posted back for assessment.

This change also impacts on other scheme providers (e.g. complying superannuation fund trustees) whose home purchase withdrawal facilities incorporate the KiwiSaver Scheme Rules by reference.

KiwiSaver HomeStart grant – 1 August 2016 changes

The KiwiSaver HomeStart grant criteria changed in a range of important respects effective immediately today and a detailed outline of the changes (produced by Housing New Zealand) is set out here.

In summary terms:

  • the income caps of $80,000 and $120,000 (see above) are now $85,000 and $130,000 respectively;
  • the existing house price caps ($550,000, $450,000 and $350,000, differing by region) have increased to:
    • $600,000, $500,000 and $400,000 for existing/older properties; and
    • $650,000, $550,000 and $450,000 for new properties.

The realisable assets test is now based on the relevant regional house price cap for an existing/older property, and the limit remains at 20% of the applicable home price cap. In Auckland, this means a home buyer can now have realisable assets of up to $120,000 (i.e. 20% of $600,000).

The maximum KiwiSaver HomeStart grant levels themselves are unchanged, at:

  • $5,000 per member (maximum $10,000 for two or more purchasers who are qualifying members) for an existing house ; and
  • $10,000 per member (maximum $20,000 for two or more purchasers who are qualifying members) for a new home, a property bought off the plans or land on which to build a new home;

after in each case 5 or more years of contributing to KiwiSaver.

General

Iain Duncan, Senior Product Analyst at Housing New Zealand (09 261 5285 or iain.duncan@hnzc.co.nz), has kindly volunteered that if KiwiSaver scheme providers have questions about any of these changes (or matters of process) then they should contact him.

Retirement schemes and bankruptcy

KiwiSaver schemes

In our last WSNZ Action newsletter (http://workplacesavings.org.nz/wsnz-action-2016-issue-1/) we:

  • clarified for KiwiSaver scheme providers, having exchanged some usefully informative correspondence, the position of the Official Assignee (OA) on several key points regarding KiwiSaver schemes and member bankruptcies following the Trustees Executors v Official Assignee decision by the Court of Appeal; and
  • relayed to providers some related process suggestions and guidance provided by the Official Assignee.

In that newsletter we also:

  • noted the OA’s suggestion that providers who receive significant financial hardship or serious illness-based withdrawal applications from bankrupt members should forward those to the OA in the first instance, so a decision can be made on whether the OA will allow a payment to the member (or a relative or dependant) for support under section 163 of the Insolvency Act 2006; and
  • advised that we would be taking the OA up on a proposal that it create a dedicated email address for KiwiSaver enquiries which all providers can use.

As some providers are no doubt already aware, that dedicated email address has been up and running for some weeks and we encourage providers to use it as appropriate.  The address is Kiwisaver@insolvency.govt.nz and we are advised that it is monitored by suitably trained staff who should be able to deal with all queries and applications in a timely and consistent manner.

Retirement schemes generally – consultation paper

On 28 July 2016, MBIE released the Discussion Document Accessibility of retirement savings in bankruptcy for the repayment of creditors - http://www.mbie.govt.nz/info-services/business/business-law/retirement-savings-in-bankruptcy.

This concise Discussion Paper (on which MBIE seeks written submissions by 5pm on Friday 30 September 2016) addresses policy alternatives for how a bankrupt person’s retirement savings (in any retirement scheme and not just KiwiSaver) should be treated and whether those funds should be available to repay creditors.

In summary terms, MBIE invites comments on three options:

  • option 1 - making all the retirement savings of a bankrupt member (excluding, in the case of KiwiSaver schemes and complying superannuation funds, Crown contribution amounts) available to the OA;
  • option 2 - making available to the OA only the portion of a member’s benefit entitlements which derives from personal contributions (with benefits derived from employer and Crown contributions not being made available to repay creditors); and
  • option 3 – allowing the OA to access a certain percentage of all retirement savings (say 50%) for the repayment of creditors and allowing the member to retain the remainder.

Minister of Commerce and Consumer Affairs Paul Goldsmith has commented that the options have been worked up in order to start a discussion and that all feedback is welcomed – including alternative options.

A number of important additional issues to consider are identified, and these include such things as impacts on vesting schedules, defined benefit schemes and foreign-sourced retirement savings.

After submissions have been looked at (we will be commenting and we also encourage our members to contribute to this important national discussion) MBIE will put forward a policy proposal to the Minister before final decisions later in the year.

Other KiwiSaver Act changes

The Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 became law and entered into force on 2 June 2016 and prescribed KiwiSaver Act amendments dealing (among other things) with:

  • improved electronic information sharing between Inland Revenue and KiwiSaver scheme providers with respect to members who transfer between schemes; and
  • introducing a special-purpose opt-out facility for persons who, as minors, were incorrectly auto-enrolled or treated as having opted in to KiwiSaver through an employer.

Multi-employer schemes – Disclose registration requirements

As multi-employer scheme providers will already be aware, late last month MBIE confirmed that pending amendments will remove from the Financial Markets Conduct Regulations 2014 (FMCR) the requirement for every plan-specific supplement to a multiple-participant scheme’s main product disclosure statement to be lodged on the Offers Register. 

There is acceptance that such supplements (which must still be provided to employees before they join the relevant employer plan) are not useful to the wider public who cannot join that plan and will potentially include confidential information.

We understand that consequential amendments will also be made to the ‘material information’ requirements in the FMCR.

MBIE recently advised that in timing terms this regulatory relief is expected to be in place by around September (i.e. by or around the time of most multi-employer schemes’ intended FMCA transition dates).  We are also advised that although a timing overshoot is always possible, it is expected to be so slight that this could be managed in consultation with the FMA.

We have been unsuccessful in challenging at regulatory level the requirement that every participation agreement forming part of a multi-employer scheme’s trust deed must be lodged on the Schemes Register.  Providers with administrative, compliance risk or other concerns in this regard have the option of seeking exemption relief from the Financial Markets Authority (FMA).

Licensed Independent Trustees – independence requirements

In our last WSNZ Action newsletter (http://workplacesavings.org.nz/wsnz-action-2016-issue-1/) we reported that the FMA had agreed to grant a class exemption addressing a range of difficulties with a restricted scheme meeting the ‘independent’ test in the FMCA for a Licensed Independent Trustee director if that scheme has a sole corporate trustee.

As to the timing for this still-pending exemption relief, FMA have advised that the fix continues being processed but there remains no specific timeframe for issuing the exemption.

The FMA is also working with MBIE on a legislative change which will remedy this issue more permanently in due course.

Other FMCA issues for retirement schemes

Below we set out a high-level recap on a range of further Financial Markets Conduct Act 2013 (FMCA) transition issues as they affect retirement schemes.

Wholesale scheme investments as ‘in-house assets’

The Financial Markets Conduct Amendment Regulations 2016 (see them here) now prescribe amendments (effective 30 June 2016) which appear to satisfactorily address the non-compliance issues that had arisen in relation to investments in an unregistered scheme operated by a related party of a restricted scheme.  As anticipated (and in summary terms) such investments are now permitted if:

  • they are duly certified under the FMCA as compliant related party transactions;
  • the unregistered scheme is a trust set up to facilitate investment and reporting for two or more registered schemes;
  • the principal business of the unregistered scheme manager is investments, and that manager has on-going arrangements in place that can reasonably be expected to ensure that:
    • it exercises due care, diligence, and skill as manager; and
    • transactions entered into for or on behalf of the unregistered scheme which provide for related party benefits to be given meet the ‘arm’s length terms’ test or would otherwise be permitted under section 174 of the FMCA if it applied; and
  • if the restricted scheme is employer-related then by 1 December 2017 it must not have an in-house assets ratio of 5% or more with respect to a sponsoring employer (or any associated person of that employer), with its proportionate interest in any non-exempted loans to or investments in that employer (or an associated person) held by the unregistered scheme counting for this purpose.

Schemes closed before 1 October 1997

The Amendment Regulations also address an issue raised in relation to the technical non-availability of the FMCA transition provisions in Part 2 of Schedule 4 to the FMCA to superannuation schemes which:

  • closed to new joiners before 1 October 1997 (when the Securities Act 1978 was extended to superannuation schemes);and
  • have accordingly never offered securities requiring either an investment statement or prospectus.

The managers of such schemes can now elect to transition in the same way as other superannuation schemes, effective no later than 1 December 2016, by notifying the FMA and the Registrar accordingly.

Superannuation schemes as QROPS

We have corresponded with MBIE regarding its announcement on 23 June 2016 that Cabinet has agreed to the policy for amendments to the FMCR ‘amending the rules for superannuation schemes in order to allow them to become QROPS schemes’.

We understand from MBIE that:

  • the detail of the amendments is still being worked through with its legal team and the Parliamentary Counsel Office; but
  • the intention is to have regulations made and in force before the end of the FMCA transition period.

We are advised that MBIE will look to undertake a short consultation on the proposed details of the changes before those details are then finalised.

The proposition to which Cabinet has agreed is that superannuation scheme providers be allowed to offer schemes that ‘comply with rules set by the United Kingdom’ so that transfers from UK pension plans can be made without attracting additional tax assessments.

There are several respects in which the current Superannuation Scheme Rules are materially at odds with those UK rules, so it will be important to ensure that the regulatory changes are sufficiently flexible to allow providers to comply with the Recognised Overseas Pension Rules as they currently apply and as they may be amended in the future.

Meanwhile, we understand from Inland Revenue that there remains no progress on addressing issues arising from the removal of the facility to transfer UK pension moneys to (and between) KiwiSaver schemes under the QROPS rules as revised by HMRC last year.

General

The Financial Markets Conduct (Restricted Schemes) Order 2016, which came into force on 3 June 2016, replaced the Financial Markets Conduct (Restricted Schemes) Order 2015 and prescribes the required FMCA scheme type designations of a large number of existing superannuation schemes.

We understand that there will be one more Order in Council, issued in the relatively near future, for other superannuation schemes which require one or more FMCA designations and were not listed in the Schedule to the latest Order.

We were pleased to note the recent Cabinet policy approval for regulations which will prescribe that, like all relevant restricted schemes, non-restricted superannuation or workplace savings schemes (or sections of those schemes) that are and remain closed to new joiners:

  • need only provide fund updates annually rather than quarterly; and
  • be subject to the same register entry requirements as restricted schemes in that regard.

Financial adviser reforms

Workplace Savings is taking an active interest in the Ministry report on the review of the Financial Advisers Act 2008 which was released on 13 July 2006, and we await with interest any discussion draft Bill, which could be as soon as the second half of this year.

In the meantime the following publications from Chapman Tripp and Kensington Swan provide useful overviews which will likely be of interest:

http://www.chapmantripp.com/publications/Pages/New-direction-for-financial-advisers-regime.aspx

http://kensingtonswan.cmail20.com/t/ViewEmail/r/A8FD8EBA29D246F32540EF23F30FEDED/9E63C7115CAF37EB907C5D7C792C0FF8

Other goings on

The FMA has also been especially busy over recent months having released (among other things) the following guidance note:

  • A guide to the FMA’s view of conduct (here) – this details how FMA will examine whether financial service providers are demonstrating good conduct under the FMCA, and the FMA has sought comments on it with a submission deadline of 31 October 2016; and
  • Fee disclosure by managed funds (here) - this guidance is intended to help managers and supervisors understand how fees should be disclosed in product disclosure statements and fund updates, and includes guidance on the classification and disclosure of:
    • performance-based fees;
    • management and administration charges; and
    • underlying fund charges;

and on how to use third-party information.

Other member news

Communications Awards

Entries have opened for the 2016 Workplace Savings Communications Awards, and they close on 14 October.  We encourage you to visit the Awards site for details:

http://www.workplacesavingsawards.org.nz/

Workplace Savings NZ Conference 2016

Our 2016 Conference – which will be called Front-footed - is planned for 7 November in Auckland.  We have dedicated sessions planned on regulation and emerging products and services.

We look forward to providing Workplace Savings members and all other potential attendees with more details in the near future – we anticipate opening for registrations in mid-August.

Speaker events

The number of people coming to Workplace Savings speaking events is improving, and that’s great news. There was a particularly strong turnout for the FMA’s Director of Regulation, Liam Mason, in June.

There will be two further events this year – in Auckland and Wellington – so do keep an eye out for the registrations notices!