Presented at 11th Annual SuperFunds Summit - March 2010.

1. Disclosure rules in the a regulatory environment

A.   CMDT identification of current problems

On a general level, the Capital Market Development Taskforce (‘CMDT’) believes investors have been poorly served by New Zealand’s capital market, as evidenced by the recent finance company collapses. The result is a lack trust amongst investors. Compounding this issue is the lack of reliable and straightforward information to help investors understand the various risks inherent in any investment.

In relation to disclosure material, the CMDT has identified two key concerns. The first is that key information is often lost amongst copious amounts of marketing material and indecipherable legalese. The second is that there is no means for investors, and potential investors, to readily compare various products.

Underlying these two concerns is the fact that most information contained in disclosure documentation is aimed at reducing issuer and director liability. Thus it is difficult for investors to compare products as investment statements are often excessively long and complex.

Furthermore, such information is often presented in a manner that is biased toward the product in question. For example, fees are presented in various guises, with numerous methods of calculation utilised. At present there is no consistency regarding fee disclosures and no ability to compare fees charged between products and funds.

The current disclosure regime is expensive for issuers yet of little use to investors. This combined with poor financial literacy undermines New Zealand’s capital market and the potential for growth. The CMDT has made numerous recommendations in respect of disclosures in the belief (and hope) that ‘better information’ and ‘better products’ will lead to a healthier market for retail investors. The aim being to increase investor participation in New Zealand’s capital market by ensuring that disclosure information is tailored to investor needs.

B.   The CMDT recommendations

The CMDT recommends simplifying and standardising disclosure documentation so as to ensure that investors know exactly what they investing in. To this end disclosure documents will:

• feature prescribed wording in concise and plain-english;
• be comprised of two parts, a very short prescribed overview and a longer ‘further information’ document;
• provide greater transparency in relation to fees, conflicts, asset holdings, and returns, particularly for managed funds;
• feature a ‘sophistication warning’ where the product in question is complex or high risk; and
• be centrally stored on a website database to allow for the easy comparison of products by investors.

The CMDT has also expressed a desire that the governance of the recommended disclosure requirements be improved.

The key recommendation is the suggestion that investment statements be replaced with a two-part disclosure document. Part A of this mandated two-part disclosure document would be one or two pages long with standardised content and presentation. Part B would be longer, with more specific and detailed information, although this would also be mandated to a degree. Any material outside the scope of Part B would be prohibited by from being included in the disclosure document. That material would be restricted to the prospectus.

It has been suggested by the CMDT that Part A would contain details of the product’s risk return characteristics, details as to whether the product in suitable for particular investors, whether the product aids diversification of an investor’s portfolio, and a comparison with other products. Part B would be subservient to Part A, containing only details which further elaborate on the Part A required information, as well as further details about the issuer and guidance as to how complaints may be laid.

C.   The Government response to the CMDT recommendations

The Government supports most of the recommendations put forward by the CMDT. A discussion document regarding the potential changes is expected in April of this year with the agreed changes implemented by October 2011.

Notably, the Government intends to introduce the new disclosure document, with much of the work already underway as part of the review of the Securities Act. The Government is also supportive of the ‘sophistication warning’ for complex or high risk products, with details to also be included in the review of the Securities Act. The Government also supports, in principle, the development of a central website to store disclosure documents for easy comparison.

D.   Changes to the Securities Regulations

Despite the ongoing review of the Securities Act, new Securities Regulations were promulgated last year. The Securities Regulations 2009 were approved by Cabinet on 24 August and took effect from 1 October 2009, with a nine month transitional period during which the 1983 Regulations may still be used.

The 2009 Regulations apply unless the prospectus is registered:

• before 1 October 2009: The 1983 Regulations apply to all offers until that prospectus expires, or the extension certificate expires.
• between 1 October 2009 – 30 June 2010: The 1983 Regulations apply to all offers under that prospectus if elected by express statement in that prospectus, until that prospectus expires, or the extension certificate expires.
• after 30 June 2010: All offers stemming from a prospectus registered after this date will be governed by the 2009 Regulations.

Although the focus of the 2009 Regulations is on financial reporting requirements, a number of changes aimed at improving the quality of disclosure have also been made. A prohibition on statements regarding the safety of securities offered has been extended to cover any implication as to safety. Thus registered prospectuses and advertisements are prohibited from implying (as well as stating) that investments in securities are safe or free from risk.

In respect of investment statements, contact details required to appear under a particular heading in an investment statement are able to be set out elsewhere so long as they are clearly cross‑referenced so as to remove unnecessary repetition and clutter within investment statements.

The names of directors of the issuer and of the manager must be disclosed in investment statements. Investment statements must also disclose the method by which an investor must pay any money, rather than the place at which payment must be made.

In respect of prospectuses, general changes to disclosure requirements include making the disclosure of director, promoter, auditor, and adviser information consistent across the range of securities. The requirements for disclosure of the nature and use of assets of issuers have also been extended to all principal assets, not just principal fixed assets. Disclosure is now also required of all fundamental uncertainties stated in an auditor’s report, and not only of qualifications.

Finally, disclosure of the price or other consideration to be paid or provided for the securities has been made more flexible to deal with situations where the price or other consideration is not a fixed amount.

 

2. Ensuring your prospectus is legally compliant and suitable for your target audience

A.  Target audience

Prospectuses and investment statements serve to meet an issuer’s obligations under the Securities Act 1978 and the Securities Regulations (both the 1983 and 2009 Regulations), and to provide potential investors with information about an investment such that they can make an informed investment decision.  It is therefore paramount to be aware of the target audience when producing a prospectus and investment statement.

Consider who the prospective investors are.  Superannuation schemes’ and KiwiSaver schemes’ potential members will vary a great deal and will include people from all socio-economic groups with a wide range of understanding of investments and savings.

Financial literacy studies in New Zealand have reported that New Zealand investors are reasonably unsophisticated, and have a low level of understanding of investment products.  Financial literacy surveys commissioned by the Reserve Bank indicate that New Zealanders are aware of some of the financial issues that they face, but are ill-equipped to make financial decisions.  They do not understand the basic financial terms or instruments, or the concept of risk and return.[1]

This was recognised by the Retirement Commissioner when KiwiSaver was introduced. The Sorted website and advertising campaigns targeted the average New Zealander, and endeavoured to guide people through the KiwiSaver investment decision.  One of the Retirement Commission’s principal functions is to improve the levels of financial literacy so people can prepare financially for retirement. 

More recently, the Capital Market Development Taskforce concluded that New Zealand “needs to equip New Zealanders with the information and advice they need to make wise investment decisions”.[2]

B.  Prospectuses and investment statements – current state

The current disclosure regime under the Securities Act requires, in respect of offers of securities (including superannuation and KiwiSaver schemes) to the public, a potential investor to receive an investment statement for products prior to subscription.  A prospectus must be registered with the Registrar of Companies, and contains more detailed information (including financial information).  Prospectuses are available to investors on request.

To understand the legal obligations and target audience, it is useful to look back at the rationale for the introduction of the investment statement regime.  In 1997 the investment statement regime was introduced as a result of the recommendations of the Working Group on Improved Product and Investment Advisor Disclosure.  The aim of investment statements was to set out “briefly and clearly (in plain English) certain key features about a security offered to the public, in a manner which facilitates comparisons with other securities.  The target user is the prudent but non-expert investor.[3]

The questions which have to be answered in an investment statement are:

What sort of investment is this?

Who is involved in providing it for me?

How much do I have to pay?

What are the charges?

What returns will I get?

What are my risks?

Can the investment be altered?

How do I cash in my investment?

Who do I contact with enquiries about my investment?

Is there anyone to whom I can complain if I have problems with the investment?

What other information can I obtain about this investment?

The intention was that by requiring every investment statement to answer the same standard questions, prospective investors could then compare investments easily.  Although the Securities Regulations prescribe details that must be included in order to answer each question, the level of information disclosed in investment statements varies considerably across products and issuers.  It is vital to ensure that documents comply with the legislation, but the challenge is to do so while at the same time providing useful documents to investors.

In the current two-tier regime, the investment statement is intended to be the simple, brief document used to sell and describe the product, with the prospectus as the more complex and detailed document, available on request for the more sophisticated investor.  Ideally the prospectus should give the directors of an issuer protection by containing the full details of a product.  However, it seems that issuers no longer (or perhaps never did) use an investment statement as a document to explain and sell products.  Rather investment statements have become more legalistic, with issuers arguably trying to protect directors more than trying to explain and sell the product.  Or sometimes documents are full of marketing information that is not product specific, which can cloud the important information.  Obviously a prospectus and investment statement must comply with the legislation, but it is important to be mindful that the requisite information is presented in a comprehensible manner.

Investment statements are required to contain, in a succinct manner, all of the information, statements and other matters specified in the Securities Regulations that are applicable to the securities to which the investment statement relates.  However the Securities Regulations do not limit the information, statements, or other matters that may be contained in an investment statement.[4] 

Issuers are often faced with the difficulty of striking the balance between providing information in a succinct, plain English manner, and ensuring that the investment statement (being an advertisement for Securities Act purposes) is not misleading, deceiving or confusing, including by omission.  Directors of an issuer do not sign an investment statement (as they do a prospectus); but do sign a certificate certifying that the advertisement is not likely to deceive, mislead, or confuse with regard to any particular that is material to the offer of securities, and is not inconsistent with the registered prospectus.[5]  The result is sometimes that a further document is produced as marketing collateral (for example a members booklet) in order to sell the product.

The trend of issuers not using the investment statement to explain the product is an indictment on the current regime.  So where to from here?

C.  Way forward

The Securities Act is intended to be subject to a wider review in the near future.  But while the current regime is in place, issuers need to work at improving disclosure documents so that they are valuable documents to issuers and potential investors alike: an issuer conveys all relevant information such that they are complying with legal requirements and are selling their products; and potential investors are given information about an investment that is comprehensible and comparable such that they feel they can make an informed investment decision.

Ways to achieve this include:

• Consider throwing away your investment statement and starting again with a fresh look.
• Undertaking a plain English re-write of your investment statement – avoid verbose and complicated language. 
• Bear in mind your audience and their likely investment literacy.  A more sophisticated investor can review the prospectus for more detailed information.
• Minimise or eliminate jargon - both of the legal and investment nature.  Everyday language should be possible to describe a key message, but where it is not, attempt to explain jargon in simple language.
• Keep your investment statement concise and understandable.
• Consider the amount of marketing information about the issuer (that is not product-specific) contained in the document – is it useful or does it just cloud the message?  The challenge is to strike a balance between marketing information and information required from a legal perspective.  To include both often results in a long document.  If you are including marketing information ask yourself whether the information will be useful for the investor and relevant to their investment decision.
• If reviewing a current prospectus and investment statement, identify what information is additional to that required by the relevant schedules of the Securities Regulations, and question whether it adds value or clouds the message.

 

3. Ensuring correct use of wording for certificates and statements as specified in regulations

A.   Identifying the documents

Both the KiwiSaver Act and Superannuation Schemes Act require certain statements and certifications in some reports and communications with members.

The most significant statutory requirements for reporting and communication with members is a scheme’s annual report. For both superannuation and KiwiSaver schemes these reports need to be prepared within five months after the end of each financial year, and sent to members within six months of the end of each financial year.[6]

In addition to annual reports, there are a number of miscellaneous areas where legislation specifies the content or wording required to be used in communications with members. These include:

• Annual statements required to be provided to members of a KiwiSaver scheme or complying superannuation fund showing the amount of each type of contribution received and the member’s ‘member’s accumulation’ at the end of the year.[7]
• Certain information that needs to be sent to members where it is proposed to transfer all or a substantial number of members of one registered superannuation scheme or (in some cases) KiwiSaver scheme to another[8] or to convert a superannuation scheme into a KiwiSaver scheme.[9]
• Certain statements and other information that members or prospective members of a superannuation scheme or KiwiSaver scheme are entitled to receive on request.[10]
• Statements that need to be contained in a ‘member’s booklet’ for a superannuation scheme or KiwiSaver scheme that is not offered to members of the public.[11]

There are also some statements and certifications required by legislation that do not relate to reports and communications to members. The most significant are the annual return required to be provided by a KiwiSaver scheme to the Government Actuary[12] and the information required to be contain in applications for registration of a superannuation scheme[13] and KiwiSaver scheme.[14] The comments in this section of this paper apply equally to these types of documents.

B.  Ensuring compliance

Compliance with the specific content requirements imposed by legislation is very important. Failing to comply with wording or content requirements can mean that documents prepared do not satisfy legal requirements. This could lead to action being taken by the Government Actuary against the scheme and its trustee(s). Ultimately, the Government Actuary has to power to cancel registration of a scheme or order that it be wound up, although in the case of a failure to include all necessary information in a report or communication to members the Government Actuary is more likely to exercise a ‘lesser’ power, such as the power to direct a scheme’s trustee(s) to supply information to members. This would still involve some cost and, potentially, negative publicity.

A number of simple steps can be taken to help ensure full legal compliance:

• Where legislation requires a certification to be included in reports or communications, always follow the wording used in the legislation as closely as possible. Inadvertent non-compliance can occur where the wording included in legislation is paraphrased.
• For documents that are prepared regularly (like annual reports) it can be a good idea to prepare template or precedent documents that contain all fields, even those that only need to be included when they apply (for example, disclosure in an annual report of any change in directors). This will help to ensure that items are not inadvertently left out.
• Always do a ‘regulation check’ against communications and reports before they are finalised. Print off a copy of the relevant sections of the legislation and check your communication against it, ensuring that all necessary items are included and (where applicable) that the legislative  wording is followed.

C.   Required content for annual reports

Superannuation schemes

The following matters must be specified in the annual report of a superannuation scheme:[15]

1                    a statement of numerical changes in the membership of the scheme during the financial year;

2                    the annual accounts of the scheme or, if the auditor's report in respect of the annual accounts is unqualified and the trustees so wish, abridged annual accounts of the scheme in respect of the financial year;

3                    if the annual accounts are included in the annual report, the auditor's report on the annual accounts or, if an auditor's report is not required, the certificates required by section 13(2) of the Superannuation Schemes Act;

4                    a statement by the trustees as to whether all the contributions required to be made to the scheme in accordance with the terms of the trust deed have been made;

5                    a certificate by the trustees as to whether all the benefits required to be paid from the scheme in accordance with the terms of the trust deed have been paid;

6                    a certificate by the trustees as to whether the market value of the assets of the scheme at the close of the financial year equalled or exceeded the total value of benefits that would have been payable had all members of the scheme ceased to be members at that date and had provision been made for the continued payment of all benefits being paid to members and other beneficiaries as at the close of the financial year;

7                    a notification by the trustees if more than 10% of the market value of the assets of the scheme at any time during the year was invested directly or indirectly (in a way in which it was reasonable for the trustees to be aware) in any employer who is a party to the scheme or in any company or entity associated with any such employer and if so, details of all such investments held during the year;

8                    for every scheme where an examination of the financial position and report by an actuary is required under section 15 of the Superannuation Schemes Act:

a           a statement as to whether the rates or amounts of contributions paid are in accordance with the recommendations contained in the most recent report of the actuary;

b           a summary of any such report received by the trustees since the date of the last annual report of the trustees; and

c           a summary of any amendments to the trust deed that have been made since the date of the last annual report of the trustees;

9                    the names of, and any changes since the last annual report in, the trustees and every administration manager, investment manager, and insurer, and of any actuaries, auditors, and solicitors of the scheme (either by reference to their own names or the names of their firms);

10                 the name and address of the person to whom all correspondence from the members to the trustees should be sent;

11                 the names of, and any changes to, the directors of any corporate trustee since the last annual report;

12                 if any of the benefits payable from the scheme are based on the investment return of scheme assets, a statement of the crediting rate or rates applied during the year;

13                 the registration date of the most recent prospectus for the scheme if a prospectus is required by the Securities Act 1978; and

14                 if the registered scheme is a complying superannuation fund:

a           the market value of assets subject to complying fund rules;

b           the number of members to which the assets relate;

c           the value of withdrawals subject to complying fund rules; and

d           if there has been an increase in a fee referred to in clause 2 of the KiwiSaver scheme rules during the year, a certificate signed by the trustees of the fund that the fee as increased is not unreasonable, after having regard to any matters prescribed under section 228(p) of the KiwiSaver Act and any guidelines published by the Government Actuary under section 127 of that Act.

Any abridged accounts included in an annual report under item 2 above must:

1                    be prepared in accordance with generally accepted accounting practice, as defined in section 3 of the Financial Reporting Act 1993;

2                    include a report by the auditor of the scheme that the abridged annual accounts have been correctly extracted from the annual accounts and that, in the opinion of the auditor, the information reported in the financial summary is consistent in all material respects with the annual accounts;

3                    if the annual accounts have not been audited because section 13(2) of the Superannuation Schemes Act applies, include a certificate by the auditor of the administration manager that adequate accounting systems, records, and methods of internal control are in place to ensure that the abridged accounts prepared by the administration manager in respect of each scheme fully managed by that manager correctly present each scheme's financial affairs;

4                    contain a statement that they are an abridged version of the annual accounts; and

5                    contain a statement advising where the member can obtain, at no charge, a copy of the annual accounts.

Where a KiwiSaver scheme has been established under the same trust deed as an existing superannuation scheme (that is, where an umbrella trust has been established), the first annual report sent to members of the superannuation scheme after establishment of the KiwiSaver scheme must include details of members’ right to elect to partially or fully transfer to the KiwiSaver scheme.[16]

KiwiSaver schemes

The required content for a KiwiSaver scheme annual report builds on the content required to be contained in the annual report for a superannuation scheme.

All of the information set out above needs to be included, where relevant, except that the statement as to whether all the contributions required to be made in terms of the trust deed have been made does not apply. Instead, the annual report must include a statement by the trustees as to whether they have applied contributions received in respect of each member, including contributions paid via the Commissioner of Inland Revenue in respect of that member, in accordance with the trust deed.[17]

In addition, the annual report must specify:[18]

1                    the number of members of the scheme who during the year have made a withdrawal for the purchase of a first home under clause 8 of the KiwiSaver scheme rules and the total amount withdrawn by all of those members;

2                    the number of members of the scheme who during the year have made a withdrawal on the grounds of significant financial hardship under clause 10 of the KiwiSaver scheme rules and the total amount withdrawn by all of those members;

3                    the number of members of the scheme who during the year have made a withdrawal on the grounds of serious illness under clause 12 of the KiwiSaver scheme rules and the total amount withdrawn by all those members;

4                    the number of members of the scheme who during the year have made a withdrawal on the grounds of permanent emigration under clause 14 of the KiwiSaver scheme rules and the total amount withdrawn by all of those members;

5                    the total amount of fees that have been charged in the period subsequent to the last annual report;

6                    the total amount of each type of contribution received by the provider for the year, and the number of members credited with each type;

7                    the total amount of members’ accumulations at the end of the year, and the number of members with accumulations; and

8                    the total amounts of fee subsidies credited to members for the year, and the number of members credited.

A KiwiSaver scheme annual report must also contain a certificate signed by the trustees certifying that:[19]

1                    they have, in respect of each member of the scheme, applied any fee subsidies received in respect of that member in accordance with prescribed requirements;

2                    there is a scheme provider agreement between the Commissioner of Inland Revenue and the provider of the scheme that remains in force; and

3                    if there has been an increase in a fee referred to in clause 2 of the KiwiSaver scheme rules during the year, the fee as increased is not unreasonable, after having regard to any matters prescribed under section 228(p) of the KiwiSaver Act and any guidelines published by the Government Actuary under section 127 of that Act.

 

4. Guidelines on using electronic forms of annual reports

A.   Introduction

Section 123 of the KiwiSaver Act 2006 and section 14 of the Superannuation Schemes Act 1989 require the trustees of registered superannuation schemes to prepare, within five months of the end of each financial year, an annual report on the scheme for that financial year.

Traditionally, annual reports for superannuation schemes have been sent to members in the post. As electronic means of communication have grown, many superannuation scheme trustees (and/or providers) are now sending members annual reports via email.

The ability for trustees to send annual reports to members via email are subject to certain requirements, including consent. The issue of consent in respect of both pieces of legislation governing superannuation and KiwiSaver schemes is addressed below.

B.   KiwiSaver Act 2006

Section 219 of the KiwiSaver Act expressly provides that a person who gives their email address to any other person ‘under’ the KiwiSaver Act, is treated as having consented to use, provide, or accept ‘information’ in an electronic form for all of the purposes of the KiwiSaver Act and the Electronic Transactions Act 2002.

‘Information’ is not defined in the KiwiSaver Act, but section 219(1) clearly contemplates that it is information of the type provided under that statute or information contemplated under the Electronic Transactions Act 2002.

The most common place for a member or prospective member to give the trustee/scheme provider their email address is on the enrolment form. If the enrolment form is sufficiently worded, then where a person provides their email address he or she is deemed, by section 219(1) of the KiwiSaver Act, to have consented to receiving information under that statute in electronic form, which includes consenting to receiving annual reports electronically.

However, there are other ways for members to provide their email address to trustees and/or scheme providers, e.g. via a call centre. It is through these other means that a member may not have been deemed to have given their consent to receiving electronic messages as the alternative means may not constitute the provision of an electronic address to another person under the KiwiSaver Act.

Therefore where a member has not provided consent to receiving annual reports via email on the enrolment form or other form which is deemed to be under the KiwiSaver Act, then consent cannot be inferred and accordingly that member should not receive annual reports in that form, unless consent is specifically obtained.

C.   The Superannuation Schemes Act 1989

Unlike the KiwiSaver Act, the Superannuation Schemes Act does not contain an express provision that where a member gives his or her email address they are consenting to receiving information in an electronic form. This is likely because sending and receiving documents in electronic form was not contemplated when the Superannuation Schemes Act was written (1989). 

Accordingly, where trustees and/or scheme providers wish to send members annual reports in electronic form, each member’s specific consent to receiving the annual report by email is required.

D.   Unsolicited Electronic Messages Act 2007

An ‘annual report’ may fall within the definition of a ‘commercial electronic message’ as defined under the Unsolicited Electronic Messages Act 2007.

A commercial electronic message means an electronic message that markets or promotes goods or services (among other things).

Depending on the content and form of a scheme’s annual report, i.e. whether it contains more material over and above the legal requirements of the Superannuation Schemes Act or KiwiSaver Act, it may be a commercial electronic message for the purposes of the Unsolicited Electronic Messages Act 2007.

While members of KiwiSaver schemes are deemed to have given their consent to receiving electronic messages, this does not automatically mean that members have also consented to receiving commercial electronic messages under the Unsolicited Electronic Messages Act.

In respect of KiwiSaver schemes, there are two options to consider if the annual report containing information such that it is a ‘commercial electronic message’:

• where consent from a member has already been obtained then electronic messages, other than the annual report, can still be sent to members, however, the trustee/scheme provider must ensure that the information does not cross the line from factual information relating to a member’s membership (exception under the Unsolicited Electronic Messages Act, section 6(b)(iv)) to being a commercial message, promoting or selling products or services; or
• the enrolment form (or other form) in which the member has given their consent to receiving electronic messages under the KiwiSaver Act, is worded sufficiently wide enough to be interpreted as obtaining a customer’s consent to not only receiving annual reports under the KiwiSaver Act, but also allowing marketing type messages about the scheme provider’s products and services.

Where an annual report falls within the definition of a ‘commercial electronic message’, then the email containing the annual report must contain a functional unsubscribe facility, as required by section 11(1) of the Unsolicited Electronic Messages Act 2007. This functional unsubscribe facility must be presented and expressed in a clear manner.

E.   The Government Actuary guidelines on providing annual reports

The above analysis is consistent with the Government Actuary’s Guidelines for the provision of annual reports for both KiwiSaver and superannuation schemes in electronic form. These guidelines were released in October 2008.

The Government Actuary’s view is that trustees of both KiwiSaver and superannuation schemes are permitted under the Electronic Transactions Act 2002 to meet their respective legal requirements regarding the provision of copies of annual reports to members, by providing these reports in electronic form by way of an email, provided that:

• any member who receives the trustees’ annual report, in an electronic form and by means of an electronic communication, has consented to doing so;
• the integrity of the annual report is maintained throughout the process; and
• the annual report is readily accessible by the recipient so as to be usable for subsequent reference. The Government Actuary states that a hyperlink to the report would not meet the requirements of the legislation.

In respect of KiwiSaver schemes, the Government Actuary noted that section 219(1) of the KiwiSaver Act provides that a person who gives his or her electronic address to any other person under that Act is treated as having consented to use, provide, or accept information in an electronic form for all of the purposes of that Act, as well as the Electronic Transactions Act 2002.

He then comments that, as section 219(1) of the KiwiSaver Act does not indicate that there is a distinction between the person to whom the electronic address is given and the person who is actually sending the information, the section appears to allow trustees of KiwiSaver schemes to send annual reports, in electronic form and by electronic means, to those members who have provided an electronic address 'to any other person' under the KiwiSaver Act.

In respect of Superannuation schemes, the Government Actuary notes that, as the Superannuation Schemes Act does not contain a section which is equivalent to section 219(1) of the KiwiSaver Act, trustees of superannuation schemes must either obtain the express consent of their members to the provision of an annual report electronically, or consent must be able to be inferred from a member's conduct. Whether consent has been provided or inferred is up to the trustee. The Government Actuary Guidelines provide examples of a number of ways this consent can be sufficiently obtained.

If an existing member has not expressly consented to receiving information in electronic form, but the member has provided the trustees of the superannuation scheme with their email address, the Government Actuary said that the trustees could email the member:

• seeking express consent to provide information in electronic form in the future;
• notifying them that the trustees intend to send the annual report electronically to that email dress in the future, and asking the member to let the trustees know if the member wishes to op-out; or
• the annual report, and then at the bottom of the email ask the member if they no do not want to receive the annual report electronically in the future (i.e. provide the member with an opportunity to 'opt-out').

For future members the Government Actuary states that the application form should require members to provide their email addresses, and should state that by providing the email address the member has ‘consented to use, provide, or accept information or communications from the trustees in an electronic form and by electronic means for all the purposes of the Superannuation Schemes Act and the Electronic Transactions Act.

 

5.  Excellence in communications with stakeholders

A.   Know your audience

The most important consideration in communicating with stakeholders is to ensure the clarity of message being conveyed.

Those in the savings industry are familiar with the intricacies of superannuation schemes and the vocabulary that comes with them. We talk about resident withholding tax, CSFs and Member Tax Credits and it makes sense to us without further explanation. However, a large percentage of superannuation scheme members don’t understand this terminology.

It’s important, when drafting any communication to members or other stakeholders, to know your audience. It’s arguable that this is more important for superannuation schemes that almost any other sort of investment. A lot of ordinary New Zealanders keep out of foreign currency, unit trusts or shares because they feel out of their depth, but superannuation schemes are a different kettle of fish. Ordinary New Zealanders may not understand the appeal of derivatives trading, but they understand the need to plan for their retirement.

As a result, superannuation scheme providers are more likely than most to have to grapple with the obstacles presented by the need to ensure information – often quite technical information – is understood by all members, including less sophisticated investors. You should bear this in mind whenever you’re preparing any communication that will find its way into your stakeholders’ letterboxes and inboxes.

B.   Keep it simple

It can’t be said often enough – use plain English. Steer well clear of legalese, investment jargon and acronyms. Use the simplest, and fewest, words possible to convey your message. Some KiwiSaver members are eleven years old, and even they need to understand.

This is a point that Retirement Commissioner, Diana Crossan, stressed when discussing the Workplace Super New Zealand Communications Awards last year. As she said, New Zealanders need clear and concise information to help them make well informed decisions about their investment dollars. Awards like the Workplace Super annual communications awards recognise that this is an important issue in the superannuation field, and that it’s not always easy.

C.   Less vs more

There’s the inevitable balancing act: do I include lots of information, because the minute details can be important? This will most likely make it longer and harder to read than it needs to be, and members may just not bother reading it. Do I keep information to a minimum? This might mean that important details are lost.

It’s simple really. If it doesn’t have to be long, then it shouldn’t be. Where complexity dictates that the communication has to be a long one, headings are a good way to delineate the message by creating sign-posts for information. It’s also a good idea to use bullet points where possible to divide the information into easily processed bite-sized chunks.

D.   To market or not to market?

As lawyers, piles of communications to superannuation scheme members cross our desks. Annual reports, member account summaries, notifications of trust deed changes, the list goes on. The understandable temptation for marketing teams is to take this opportunity to include marketing material communications being sent to members.

It’s important to start the process with a clear concept of the point that needs to be conveyed. This message must not be muddied by unnecessary information, nor should it skimp on the details. Any marketing information included must not detract from the main message – especially where communication being sent is one that is required by legislation.

 

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[1] Reserve Bank of New Zealand: Bulletin, Vol. 70, No. 2

[2] Report of the Capital Market Development Taskforce December 2009

[3] Working Group, Summary of Recommendations, p 54

[4] Regulation 7A of the Securities Regulations 1983 and Regulation 19 of the Securities Regulations 2009

[5] Regulation 17(2) of the Securities Regulations 1983 and Regulation 30(2) of the Securities Regulations 2009

[6] Sections 14(1) and 17(1)(a) of the Superannuation Schemes Act 1989 and section 123(1) of the KiwiSaver Act 2006

[7] Section 125A of the KiwiSaver Act 2006

[8] Section 9B of the Superannuation Schemes Act 1989 and sections 120 and 121 of the KiwiSaver Act 2006

[9] Section 140 of the KiwiSaver Act 2006

[10] Sections 15A and 17(1)(b) and (3) of the Superannuation Schemes Act 1989 and section 122 of the KiwiSaver Act 2006

[11] Section 16 of the Superannuation Schemes Act 1989 and section 122(1) of the KiwiSaver Act 2006

[12] Section 125 of the KiwiSaver Act 2006 and clauses 8 and 9 of the KiwiSaver Regulations 2006

[13] Section 5 and schedule 1 of the Superannuation Schemes Act 1989

[14] Sections 133, 136 and 149 and schedule 2 of the KiwiSaver Act 2006

[15] Section 14 and schedule 2 of the Superannuation Schemes Act 1989

[16] Sections 154 and 155 of the KiwiSaver Act 2006

[17] Section 123(3) of the KiwiSaver Act 2006

[18] Section 123(5) of the KiwiSaver Act 2006

[19] Section 123(4) of the KiwiSaver Act 2006