Superannuation - The big ripoff

I have been reading Gareth Morgan - Big Game Part VI : Insurance rip-offs could undermine confidence in the finance sector and the associated articles with interest.  Adolf over at SH assures me that there are many more ethical practitioners in the field than would fit the description of Gareth Morgan.  But from my own observation over many years my sympathies tend towards those of what Gareth Morgan is saying.  Those honest players must be more proactive in improving standards and driving out the cowboys.  I hope that Gareth Morgan names some names.

First, a stop to this securities malfeasance requires the following sanctions:

• Prohibit immediately the sale of any life insurance that includes any savings or investment product;
• Outlaw the practice of creating reserves with any saver?s funds;
• Prohibit the pooling of investment monies via the device of unitization, thus outlawing this obscenity of opaque and variable unit price calculation methodology; and
• Require all guardians of portfolio savings to provide investors quarterly with a transparent reconciliation of their funds with values of the underlying securities owned, confirmed by independent parties ? stock exchange prices and the like. The impact of this reform will be to take actuaries out of the savings and investment business immediately. The activities of this secret society will then be confined to the insurance business from whence it came. The abuse of the wide discretions with other people?s savings is at the core of the disease.

Second, the challenge is to remedy the situation for the holders of the two million policies of the kind affected that are outstanding. To facilitate this, the authorities have to sanction the insurance companies immediately and do it hard. The measures necessary are:

• Freeze the assets of all insurance companies that have been involved in the issuance of unit-linked collective savings products;
• Require all reserves from these products created over the past three years to be reversed ? so that the investors in these products get their entitlements to those reserves returned. In the cases where the reserves have been applied to associated companies (for example as expenses, or fees) those companies to be liable to return the monies. Once the fund monies have been returned and ring-fenced, permit the company to continue on with its life insurance business; and
• Appoint a receiver to all such funds with the purpose of returning to members their contributions and any returns made over this three year period. Then close the fund.

Third, punish the offenders. It is clear a large number of illegalities have been part of this activity. They are particularly evident with the rewording of contracts that some of the firms have undertaken.

SIX STEPS TO CLEANING UP THE MESS

Stop the behaviour;
Compensate those who have been fleeced already;
Rehabilitate the primary offenders, insurance company senior actuaries and managers;
Punish the illegalities;
Save the credibility of the KiwiSaver initiative;
and Avoid a financial sector collapse of confidence