Bayly AndrewANDREW BAYLY (National—Hunua): Thank you Mr Assistant Speaker. It's a pleasure to be talking on this KiwiFund Bill and I congratulate Mr Fletcher Tabuteau for having yet another bill drawn from the ballot. I just wish he was slightly excited about it. I've just got to say Mr Tabuteau's a very likable and personable person and a professor of many things but I'm just not quite sure about this bill.Now before I get into it I think it's useful just to recap exactly what the bill proposes. What this bill proposes is to establish a working group by legislation—by legislation. It is to have a working group of four to six people to look at or to examine first of all whether KiwiSaver providers at the moment are charging exorbitant fees; the second thing is to see whether they're investing in unethical investments; and thirdly—and I find the terminology interesting—whether they're generally profiteering in the trading of KiwiSaver providers."To be honest I don't understand what "trading of KiwiSaver providers" means. But as Mr Tabuteau noted in his speech the working group would advise setting up a new KiwFund to achieve the following—and I will just quote here. The first one is "lower and"—I presume more—"transparent" fees because transparency is an issue that is already being covered and I'll talk about that later; secondly "a government owned and operated KiwiSaver scheme;" as opposed to one owned by other parties; thirdly "a requirement that profits stay in New Zealand;" fourthly "preferential treatment given to New Zealand based investments;" fifthly "a requirement that funds are invested in socially and ethically responsible ways; and—last but not least—a Government guarantee around all these activities. Well what a list.Anyway I think that it was very timely as Mr Tabuteau noted this morning that the Guardians of New Zealand Superannuation—they're the ones that manage the New Zealand Superannuation Fund—came to see us at the Finance and Expenditure Committee this morning. And what a success story.Michael Wood: "Thank you to the fifth Labour Government." ANDREW BAYLY: And I can see a couple of the members on the other side there—$6.2 billion in profit they made for hard-working New Zealanders last year $38 billion in funds under management and an average return since it was formed in 2003 of 10.22 percent a year—10 percent a year. Outstanding; in fact it is one of the best funds in the world. But I also note that this is the New Zealand Superannuation Fund. If we look at the rest of the superannuation industry there are nine default providers of which Kiwibank is one and then a host of third-party providers who provide very professional management of funds on behalf of a whole raft of New Zealanders.So I just wanted to take this bill and take it back to the key principles that we're seeking to address. The first one was the achievement of a lower and more transparent fee structure. Well first of all I've got to say I support the notion of reviewing the fees in the superannuation industry. I think there are grounds to have a review of that and I do support that. I would note however we have a vibrant and competitive fund management industry as I noted before. For instance I would note that Simplicity NZ since it came into our market only 18 months ago has now got $350 million under investment and is one of the lowest-fee providers of funds in New Zealand. It has made great inroads partly because it's offering the lowest level of fees. So it does show there is a vibrant industry and not everyone wants to charge and compete merely on returns but they want to compete on net returns after fees.I do note Mr Tabuteau's comment that 95 percent of people are still in their default provider fund. So even if you set up this fund I'm not sure you're going to see everyone migrating to a lower fee structure arrangement. So I just don't think this bill actually helps.The second test was to offer the option of a Government owned and operated KiwiSaver fund. As I noted before you've got New Zealand superannuation which is owned by the Government—controlled by the Government in effect—and then you've got the Kiwi Wealth KiwiSaver Scheme. The last time I saw it that was set up by New Zealand Post which is owned by the New Zealand Government and which more recently has had co-investment with New Zealand superannuation. So in effect we already have a Government provider.So I think it's slightly incorrect to suggest that there is no Government involvement in the sector. In effect what I think this bill is suggesting is that we actually set up a third Government-owned entity to operate in this sector and I'm not actually finding the reasons to do that very compelling.The next issue is the one raised around the requirement that profits stay in New Zealand. But again as I noted before we've already got strong involvement in the sector and those profits all of course are retained in New Zealand. The other operators all pay tax. They pay significant amounts of tax. In fact the New Zealand Superannuation Fund told us this morning that they've paid $4 billion in tax since they've been established and where does that come? That comes back to the Government of course. So they're already paying substantial tax and I think the requirement that all of the profits stay in New Zealand is a notion that's somewhat misguided.The fourth issue is the test around preferential treatment given to New Zealand investments. Again at a high level it sounds very compelling and it sounds great. But I think it's a classic New Zealand First policy that sounds very popular—"Let's invest in New Zealand. Let's support New Zealand."—but actually when you think through it for a little bit it is actually a misguided initiative. For instance the New Zealand Superannuation Fund has approximately 14 percent of its investments invested in New Zealand investments—only 14 percent. It's actually quite a high proportion. What people don't realise is that if you were just to invest in New Zealand assets whether they are businesses listed companies bonds Treasury and everything like that what that means is that you have a far higher risk portfolio. That leads to greater volatility and ultimately it means lower returns for New Zealand investors. That's why all these funds whether they are privately owned or whether they are Government-owned actually always have a component of international equities property and Government stock. That is about returning the highest level of return to New Zealanders. So I think that idea about keeping it all in New Zealand investments is misguided and also not well-thought-through.The fifth test of course is the requirement that a fund invest in socially and ethically responsible ways. This is a matter I took up with the guardians this morning and they've been very proactive since they started addressing this issue. What they told us is that they have since 2009 changed their fund managers to make sure that they are only investing in ethical investments. They've actively deselected fund managers who are not meeting those requirements. And for third-party fund managers they're actually now piggybacking off the back of that by looking at the range of fund managers that the New Zealand Superannuation Fund has selected and are using them as managers in their own funds. And they also covered the issue around sustainable investment and carbon and they've also stopped investing in a number of other companies. The last issue of course was that of Government guarantee and I just think we haven't heard any reasons why you'd want to do this and why it's needed. As a number of commentators have observed why would you be a member of a non-government scheme if everyone else didn't have such a guarantee behind them? And secondly actually one commentator said it'd be a moral hazard for an active manager to be managing personal portfolios.This is another working group that's been offered to be set up by legislation. This Government has already set up 12 working groups in 121 days. That's on average a new working group every 10 days of office. This would be number 13. You do not need to legislate to look at these issues. You do not need to legislate to set up a working group. If there is a need to look at any of these issues then they should get to the point and go ahead and do it. But you do not need a legislative process to do this. And on that basis I think all this is going to do is turn into another talkfest."