Hundreds of thousands of New Zealanders will be significantly better off in retirement following changes to the default KiwiSaver scheme, Finance Minister Grant Robertson and Commerce and Consumer Affairs Minister David Clark said today.
The new default provider arrangements, which will take effect once the terms of the current providers ends on 30 November 2021, mean those joining the scheme at 18 could have an extra $143,000 at retirement through lower fees and higher investment returns.
Around 381,000 members are currently in the default fund they were automatically allocated to when they started a new job, because they did not make any active decisions about their fund.
“The Government wants all New Zealanders to reap the benefits of their KiwiSaver, whether they’re actively engaged in their fund or not. As the 2014-2021 default term comes to an end, we’ve taken the opportunity to enhance the overall benefits of being in a default fund,” Grant Robertson said.
On the advice of an independent panel, the number of default providers reduces from nine to six: Bank of New Zealand, Booster, BT Funds Management (Westpac), Kiwi Wealth, Simplicity and Smartshares (NZX).
Commerce and Consumer Affairs Minister David Clark said the Government went to tender last October signalling the need for providers to demonstrate they would go further to deliver more for default members.
“The six default providers were selected because they offer the best value for money for their members in terms of lower fees and higher levels of service.
“We’ve also changed the default provider settings to enhance Kiwis’ financial wellbeing in retirement. This includes moving the default investment fund type from a conservative to a balanced setting to increase the likelihood of higher returns over the long-term.
“To illustrate just how much default members stand to gain, an 18-year-old earning $50,000 a year and contributing three percent of their income to KiwiSaver is estimated to have an extra $143,000 when they reach 65. They will also pay around $3,900 less in fees.
“Another enhancement is ensuring default members receive higher service levels from their provider, including guidance at key points on their retirement journey to help them with things like selecting the right fund and contribution rate.
“However, if a member wishes to remain with their current provider or in their current fund, they can choose to do so by contacting their KiwiSaver provider,” Dr David Clark said.
The Government is also ensuring default funds are invested more responsibly, Grant Robertson said.
“We know many Kiwis care about where their money is invested, so we are excluding any investments in fossil fuel production. This reflects the Government’s commitment to addressing the impacts of climate change and transitioning to a low-emissions economy.”
David Clark said the improvements to the default provider scheme will enhance the financial wellbeing of three million KiwiSaver members, not just those in a default fund.
“We’re sending a clear message to KiwiSaver members that the government believes they deserve much better bang for their buck. Whilst default members will be transferred automatically, any KiwiSaver member will be able to choose to join one of the new default funds that will be available in the coming months.”