Review of KiwiSaver default provider arrangements

Default funds currently have a conservative investment mandate. A change to invest more in growth assets could make a big difference to retirement incomes for people in default funds.

Options we are considering to address this problem: 

Some of these options affect first-home buyers. We are interested in your ideas about how first-home buyers in the default funds could be encouraged to choose a fund that best suits their circumstances.

What is your feedback on the investment mandate options for default funds?

Fees can make a big difference to retirement balances for default members. Fees have a compounding effect over time, especially for people on low balances.

Fees for default members usually include a fixed annual fee and a fee that is a percentage of the KiwiSaver balance. 

Options we are considering to address this problem:

Option 1: The government sets a fee for default providers

This option could lead to lower fees, but it may be difficult to determine what the right fee should be.

Option 2: Requiring percentage-based fees to reduce over time as the provider’s funds under management increase

This could lead to lower fees for default members. However, providers might build the requirement into their offerings, and instead offer higher fees to start with.

Option 3: Zero-fees for under-18s or people with low KiwiSaver balances

This option would help under-18s to accumulate savings, although providers might charge higher fees for other members to compensate.

Option 4: Mandate no fixed annual/monthly fees

This could result in higher after-fee returns, especially for those with low contributions. However, providers may compensate by increasing percentage-based fees.

Which fees option do you prefer and why?

There is evidence that default members would want their investments to be made responsibly. However, imposing responsible investment requirements could be tricky, and could potentially impact on returns for default members. Some people might think that it isn’t the government’s role to ensure responsibly investment practices.

Options we are considering to address this problem:

Option 1: Prohibit default providers from investing in particular sectors or industries or require them to meet certain certification standards

This may lead to providers investing more responsibly, but could also lead to higher fees.

Option 2: Require providers to give members standard information in relation to responsible investment practices

This would allow members to make informed decisions about their preferred KiwiSaver provider by allowing easy comparison between default providers. However, could also lead to higher fees.

Should default funds be used to promote responsible investment? If yes, how should this be done?

With $58 billion funds under management, KiwiSaver presents a unique opportunity to boost investment in New Zealand’s capital markets. 

Options we are considering to address this problem:

Option 1: Require that parts of the management of KiwiSaver default funds be New-Zealand based

Could increase investment in New Zealand due to greater familiarity with the local market but, could lead to higher fees

Option 2: Require that a small percentage of default funds should be invested in a targeted area, for example, early stage New Zealand businesses.

Could increase investment in the targeted area, and could develop investment expertise in the targeted area. However, could lead to higher fees and reduce provider flexibility to invest in clients’ best interests.

Should default funds be used to develop New Zealand’s capital markets? If yes, how should this be done?

We are considering transferring default members to the newly appointed and reappointed default providers. If you are a default member, this could mean that your default provider changes.

How disruptive would it be for a person if their default provider changed?