New Zealand: Super funds get better ride in amended Financial Markets Conduct Bill

Brief Counsel
Last Updated: 15 October 2012
Article by Mike Woodbury

Most Read Contributor in New Zealand, September 2016

Changes to the treatment of KiwiSaver and superannuation schemes in the Financial Markets Conduct Bill will simplify compliance and make for a more pragmatic regime.

We track the main amendments to emerge from the select committee process and provide a brief commentary.

Purpose of superannuation scheme

The Bill will still require that - as a general rule - the sole, as opposed to the principal, purpose of a registered superannuation scheme must be to provide retirement benefits.

Officials’ advice to the Commerce Committee (the Committee) is that the current law in this area is too loose and “out of step with the rest of the world, which [has] stronger lock-ins and tighter purposes”, placing New Zealand schemes under question for overseas recognition and portability purposes.

A scheme with other purposes not “merely incidental” to providing retirement benefits must be registered as a standard managed investment scheme.

However, the Committee has recommended some changes to soften the application of this rule:

  • an existing registered superannuation scheme (or a section of that scheme) that is closed to new joiners can continue operating under the current “principal purpose” restriction, and
  • a “prescribed workplace scheme” (to be defined by regulation) can retain, as a stand-alone purpose, paying benefits when members leave the employment of the relevant employer or industry.

The first of these facilities will enable a superannuation scheme (including a retail scheme) to “grandfather” the more permissive early withdrawal provisions in place for existing members and prescribe (in a new section) more restrictive entitlements for new joiners which meet the sole purpose test.

Workplace schemes may need to invoke both exceptions in order for current in-service withdrawal facilities to remain available to existing members. The Bill allows early withdrawals in limited circumstances, or according to limited criteria, that are defined in trust deeds. However, each such facility must as a general rule be “merely ancillary” to the sole purpose of providing retirement benefits.

Related amendments clarify that permitted withdrawals from KiwiSaver schemes are not inconsistent with the sole purpose test. They might usefully also have prescribed a similar exception for KiwiSaver-consistent early withdrawals offered by other superannuation schemes.

Any application for registration of a managed investment scheme as a superannuation scheme must be accompanied by a certificate from the Financial Markets Authority (FMA) that it is satisfied the scheme complies with the applicable withdrawal restrictions.

New Zealand criteria

The Bill is now clear that for all KiwiSaver and superannuation schemes, the “New Zealand criteria” apply only “on entry” and do not apply with respect to later transfers between schemes.

The criteria will be more liberal for superannuation than for KiwiSaver schemes. It will be permissible to join a superannuation scheme if employed on New Zealand terms and conditions by a New Zealand-resident employer (without having to be a citizen or entitled to permanent residence).

Related party investments by restricted schemes

The proposed 5% limit on investments by restricted schemes in related parties of, or participants in, those schemes has been retained. The terminology now used to describe such an investment is an “in-house asset”, meaning a scheme asset which is:

  • a loan to or an investment in, or
  • subject to a lease or lease arrangement with

a related party of the scheme or a scheme participant (or an associate of either of them).

However the proposed rules have been relaxed as follows:

  • in-house assets will no longer be aggregated when testing compliance with the 5% limit (in-house assets relating to persons who are not associated with each other will count separately, such that there will be no breach if each such investment is below 5%)
  • the 5% restriction will initially apply only to new investments made after the date when the legislation takes effect
  • schemes will then have three years from that date to ensure that no in-house asset exceeds 5% of scheme assets, and
  • employer contributors will be treated as related parties only in the case of specified employer-related schemes.

The Bill also now prescribes that (among other new exclusions) in-house assets exclude investments in other registered schemes or prescribed overseas schemes.

We had submitted that the 5% limit should be expressed in benchmark (not actual) asset allocation terms to avoid inadvertent breach. The Bill now provides that a scheme’s in-house assets ratio must be calculated in accordance with FMA-notified frameworks and methodologies, which officials consider can address that concern.

These changes will make the related party investment restrictions workable for more restricted schemes than before, and others will now be able to seek exemptions as soon as the Bill becomes law, or will at the very least have more time to comply.

Other compliance relief

New provisions concerning the content of governing documents will lessen the level of prescription that was to have been required in scheme trust deeds in areas such as contribution requirements and asset valuation methodology.

Indemnity protections will now be permissible, as we had urged, for:

  • managers’ non-negligent breaches of trust deeds, SIPOs or their issuer obligations, and
  • supervisors’ non-negligent failure to remedy issuer contraventions or act in accordance with special resolutions by scheme participants.

Indemnity protections will also now be permissible for investment managers in a wider range of circumstances, including non-negligent SIPO breaches.

A restricted scheme will need an external custodian only where it does not have a corporate trustee or use for investment purposes a nominee company with the scheme’s trustees as its directors. Natural person trustees may need to incorporate, or establish nominee companies, in order to continue holding scheme assets.

We welcome the unheralded but long-overdue amendment allowing the supervisor or trustee of a registered scheme to “make a partial distribution of assets of the scheme at any time before a copy of the full financial statements [prepared as at the wind-up date] is sent to the FMA” (unless prohibited by the trust deed).

This addresses a key concern relating to superannuation scheme wind-ups and we urge that it be made available as soon as the Bill is enacted.

No doubt with a view to avoiding difficulties of the kind which arose for some of this year’s KiwiSaver governance changes, the transitional provisions for FMA-approved trust deed amendments now expressly allow changes which, although not related to ensuring compliance with the new legislation, are otherwise permitted by law.

Other, mostly technical or corrective, amendments to the Bill show a welcome pragmatism which will simplify compliance.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.