‘Roads don’t pay dividends’ for savers

New Zealand First has proposed to bring a state-run KiwiSaver to the table in order to promote local investment in infrastructure, but experts are sceptical. The government default fund, called KiwiFund, was first proposed by leader Winston Peters in the run up to the 2014 election, as a ’’bottom line’’ in coalition negotiations.

Peters called the existing system a ‘‘pot of gold’’ for providers and not savers.

According to Peters, an ‘‘independent source’’ told him that over the next 30 years, fees would cost $22 billion.

Claire Matthews, a KiwiSaver expert at Massey University, said it was ’’reasonable as a ballpark figure’’ but sounded worse than it was.

‘‘It’s spread over a large number of funds and they are actually doing some work for it, so it’s not just free money.’’

She said sector-wide, fees were $240 million in 2015, and $290 million last year.

Matthews said she found the policy ‘‘highly undesirable’’ because it could feed into a nervousness New Zealanders have around KiwiSaver.

‘‘Because it’s a government promoted and government designed scheme, people form this belief the Government is going to take the money.’’

She said a government fund would have a ‘‘contagion affect’’ on other KiwiSaver funds.

The idea for a state-run fund was first floated by former Green co-leader Russel Norman in the run up to the 2011 election, as a way to lower fees for investors.

Economist Shamubeel Eaqub, said the policy seemed ’’like a solution in search of a problem’’.

Eaqub is a director for the KiwiSaver manager Simplicity.

‘‘Just because something is government-owned doesn’t mean it’s going to have low fees. That was the argument for KiwiBank but it hasn’t turned out to be a very low cost business per se.’’

Eaqub predicted fat would get trimmed on funds as disclosures on fees became required next year and New Zealand followed the US’s trend towards investing in passive funds with lower fees.

He said infrastructure investments were something private KiwiSavers rarely did because they weren’t liquid enough, and did not generate high returns. ‘‘Roads don’t pay dividends.’’ He said it was in the best interest of Government to borrow the money from foreign suppliers of capital who lent money for ‘‘stupidly low interest rates’’.

Eaqub said the state-run KiwiSaver would do best to use managers from the New Zealand Superfund or ACC to minimise management fees.

New Zealand Superfund spokeswoman Catherine Etheredge said 2.5 per cent of the superannuation fund was invested in infrastructure, though none of this was through bonds.

‘‘As a long-term investor seeking to maximise returns, the Fund is heavily weighted to growth assets rather than fixed income assets such as bonds,’’ she said.