KiwiSaver review sees shake-up of default providers; Some major players gone

Investing

Simplicity and Smartshares to become default KiwiSaver providers, while ANZ, AMP, ASB, Fisher Funds and Mercer won't have their contracts renewed

14th May 21, 9:52am by Jenée Tibshraeny

The Government is reducing the number of default KiwiSaver providers from nine to six.

Simplicity and Smartshares (NZX) will join existing default providers - BNZ, Booster, BT Funds Management (Westpac) and Kiwi Wealth.

Major players in the market - AMP, ANZ, ASB, Fisher Funds and Mercer will no longer be default providers.

KiwiSaver members who don't actively choose an investment fund are put in a default fund. Currently there are around 381,000 people in this position, or 12% of KiwiSaver members.

The Government reviews default providers every seven years. Eleven providers partook in the tender.

The new set of default providers will charge lower fees than is currently the case, and not charge a fixed annual or monthly fee.

Default funds will also switch from being conservative (more weighted towards bonds and cash than equities) to balanced.

And default providers will be banned from investing in fossil fuel production and illegal weapons. These changes were announced last year.

Default providers are obligated to engage with their members to help them make informed decisions about their retirement savings at key points.

KiwiSaver members who haven't actively chosen to be in a default fund, and whose fund managers haven't been reappointed, will have their investments moved by the Inland Revenue to one of the new default managers.

Members whose managers have been reappointed will stay with those managers, but have their investments moved from conservative to balanced funds.

KiwiSaver members in default funds won't have to do anything as the change is made.

It's important to note that while AMP, ANZ, ASB, Fisher Funds and Mercer will no longer be part of the default KiwiSaver scheme, they will remain regular KiwiSaver providers. Their customers who have actively chosen to be in a fund won't be affected at all.

As for the tender process the Ministry of Business, Innovation and Employment ran, proposals were assessed against a set of criteria, which included a 60% weighting on fees.

The remaining criteria included their ability to deliver the investment product (including the new requirements such as the need to exclude investment in fossil fuels production), manage transitional arrangements, provide a good customer experience for their members, and the provider’s organisational structure and financial standing.

Below is a table showing fee changes. Fees are calculated as a percentage of a member’s balance over a year. So, someone with a $10,000 balance, who is charged a 0.3% fee, will pay $30 over a year.

Provider	New fees	Old fees
BNZ	0.35%	0.50%
Booster	0.35%	0.38%
BT Funds Management (Westpac)	0.40%	0.47% + $1.83 monthly fee
Kiwi Wealth	0.37%	0.52%
Simplicity	0.30%
Smartshares (NZX)	0.20%
ASB		0.40% + $2.50 monthly fee
ANZ		0.44% + $1.50 monthly fee
AMP		0.39% + $1.95 monthly fee
Fisher Funds		0.52% + $1.95 monthly fee
Mercer		0.47% + $2.25 monthly fee

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47 Comments

by mfd | 14th May 21, 10:07am 1620943671

Good job Simplicity. According to their e-mail to members, they will be using the additional scale to continue to reduce fees (currently ~0.3% with 15% of that donated to charity + $20 annual fees). I look forward to keeping even more of my money in future.

by morphyoss | 14th May 21, 12:05pm 1620950727

Yeah that are excellent, great product and great philosophy. I wonder if their CEO Sam Stubbs will still have the time to personally phone all new members :-)

by Burni | 14th May 21, 10:34am 1620945296

One step closer to the government taking it all over and nationalizing it?

by Jenée Tibshraeny | 14th May 21, 11:06am 1620947182

Not at all. Today's announcement follows a routine review process that happens every seven years.

by donny11 | 14th May 21, 12:20pm 1620951635

Give it 2 years. Someone will have to buy our debt going forward. It won't be the Chinese.

by mfd | 14th May 21, 12:24pm 1620951857

You think Kiwisaver balances will be nationalised within 2 years? I'd take that bet all day long.

by donny11 | 14th May 21, 12:52pm 1620953556

Yeah 2 years is a bit soon. I think in the long term a notable percentage of our kiwsaver balances will be forced to buy NZ govt debt. As no one else will want to buy it. Financial repression etc.

by Lanthanide | 14th May 21, 12:54pm 1620953657

If the government was relying on kiwisaver funds to buy debt, we'd already be screwed.

by AndrewRiddell5886 | 14th May 21, 5:50pm 1620971409

Ah, you do realise that we are a sovereign currency issuing nation? And so your concern is without foundation?

by HarshaSirisena6556 | 14th May 21, 7:21pm 1620976914

You mean the RBNZ will keep hoovering up NZ government debt forever like the RB of Zimbabwe did?

by Contrarian | 16th May 21, 10:42am 1621118549

The idea of default investment itself is not a healthy one. At the time of signing up, the member should be compelled to pick their provided, after studying the relevant strengths and the scheme they want to be in.
That is a better way to educate one in investment practices.

by Noncents | 14th May 21, 10:37am 1620945420

Seems a bit off that they will move all people in the existing default funds. Once they are in, is it not their choice?

If the Govt are going to get that involved then the default fund should be NZ Super scheme, and you have to opt into something different.

by Lanthanide | 14th May 21, 12:56pm 1620953815

People in default funds, by definition, have not made any choices.

If moving them to a different provider forces some people to wake up and take their financial future into their own hands by making choices, that's a good thing.

The NZ Super Fund has a very specific mandate and time frame for its investment. Any kiwisaver setup that involved the super fund would naturally be a different beast, not least because they would have to deal with retail customers (lot of overhead doing all that customer support and management systems) but they'd also have to allow early withdrawals for house purchases etc, as well as different dates of people withdrawing their funds.

by Noncents | 14th May 21, 1:59pm 1620957587

"People in default funds, by definition, have not made any choices."

That is a big assumption. Some may well have decided on those funds for varying reasons. I know a few people in the default solely to claim the Govt contribution. Other than that they would not be in KS at all. They prefer default conservative as they want to ensure they keep the balance. They manage growth with other investments.

I don't disagree with the bit about people waking up.

But it does concern me that the Govt is unilaterally messing with peoples personal finance. If they can effectively step in and act on behalf of someone, what is stopping them doing that to any other Kiwisaver provider/member? Maybe the Govt determine everyone in X's growth fund is being fleeced, so move them to Y's Conservative.

by Theoracle | 14th May 21, 10:45pm 1620989131

What are you talking about?? Anyone in any Kiwisaver fund gets the govt contribution so long as they deposit $1043 before 30 June. It is not just those in the default fund that get the contributions.

More research needed before commenting please.

by Lanthanide | 15th May 21, 4:46am 1621010779

by Lanthanide | 15th May 21, 4:46am 1621010811

He's saying these people joined up solely to get the government contribution, and have 0 interest what happens to their kiwisaver beyond that.

Which is a truly stupid attitude to take, anyway.

There are providers that have life stages accounts that automatically reduce your risk exposure as you age. 1 hour spent joining one of those, and never spending another second on KiwiSaver ever, could be a difference of $50k or more when you retire.

by Tom Valen | 14th May 21, 11:59am 1620950388

Hmmm....seems like default providers are obligated to work with and look after their customers. My current provider has been dumped as one of the default providers, so they were obviously not prepared to come up to scratch. I’ll now shift to one of the better outfits.

by morphyoss | 14th May 21, 12:07pm 1620950822

These have been cash-cows for the default providers. Good to see the changes to make it all a bit more customer friendly and put the onus back on the providers to offer a good product and service.

by KH | 14th May 21, 1:09pm 1620954595

Time to beef up Kiwisaver. A. Make it universal. B. Contributions to progressively rise.
New Zealanders would be owners, not borrowers.
Eventually (30 years) it will replace super. And we will not have to endure the short term thinkers uselessly debating 65 or 67.

by npc | 14th May 21, 2:33pm 1620959603

The idea of contributing what would be an individuals "super" to kiwisaver is an interesting idea. At the very least it would stop the government from pilfering it.

by hootenany | 14th May 21, 2:48pm 1620960492

Personal I don't have Kiwisaver and my company puts their contribution into a non-kiwi saver scheme. I also invest in shares privately, I would prefer if all of was managed by me, as opposed to paying fund managers. If I leave my job I can draw the money down when I want, If I choose to retire at 50 I can, I don't have apply to get my money, no need to apply for a payment holiday if I wish. I don't have the government changing the rules on a whim. I do loose the $500 tax break, but as far as I am concerned its as small price to pay to keep the governments sticky fingers a little bit more out of my life.

Also if they make Kiwisaver universal then next logical step will be to dump NZ super.

by facepalm | 14th May 21, 3:16pm 1620962164

Or alternatively you could not be so negative on the scheme and realise is is a forced savings program that the public as a whole is not capable of doing for themselves. Just like speed limits. We are not all capable of driving sensibly so we agreed the govt will make rules to control speed. The $500 tax break is actually a 50% Govt guaranteed return on your $1000 investment. Do your own thing if you want with your other savings but that seems like a silly little win to turn down. Yes, ideally everyone would have autonomy and take personal responsibility but that's not how the model coddle society works..

by zorba | 14th May 21, 4:10pm 1620965415

Yes $500 PA for just a $20 per week investment seems a 'no brainer' to me..

by Beanie | 14th May 21, 10:31pm 1620988292

Think longer term. Eventually there will be many tens or even hundreds of thousands of dollars tied up in your account, all under effective control of the government. And you would happy with that state of affairs for a measely 10 bucks a week??

by Lanthanide | 15th May 21, 4:52am 1621011133

It's not under "effective control" of the government, any more so than your private bank account with a big 4 Aussie bank is.

Any government that tried to raid or take control of KiwiSaver would have a huge electoral backlash.

> And you would happy with that state of affairs for a measely 10 bucks a week??

You somehow manage to acknowledge, and then immediately ignore, compounding investment returns.

by Beanie | 15th May 21, 9:40am 1621028442

The ten bucks a week is the government contribution. Your own contribution is more likely $100 a week, so the government gets control of your fund for only 10% of the input.

And they do have control. At the moment they dictate when you can get your hands on it. Just look overseas to see how common means testing is of government welfare for the elderly. It will come here too, and with the increasing cost to the taxpayer I would say there will be a voter backlash if they don't introduce it here again.

My prediction, a 30 year old today can expect their kiwisaver balance to be compulsorily converted to an annuity upon retirement, and that annuity to be included in means testing.

by KH | 14th May 21, 3:18pm 1620962309

Yes. With a universal Kiwisaver no need for national Super. Changeover sometime in the 2050s I reckon.

by maurice24 | 15th May 21, 5:23pm 1621056188

Absolutely true. The Government already requires anyone with a Kiwisaver type account overseas to hand their savings over in order to qualify for our so called 'Universal Super'
Change over time yesterday!

by mfd | 14th May 21, 3:33pm 1620963233

I take the middle road and invest the minimum 3% to get full employer matching and government contribution. Above that 3%, I save and invest my money elsewhere. I expect to still need quite a lot of money after 65 so it's not a big deal that some of it is locked up until then, and if I retire early it will be funded by my other investments.

by AndrewRiddell5886 | 14th May 21, 5:51pm 1620971474

And for people who don't work and earn?

by Hamish | 14th May 21, 6:12pm 1620972771

That's an important point which has been raised. Possibly on this site.
One group penalised would be parents (typically the mum but not always) who takes time away from work with newborns. Especially exacerbated in the event of a separation down the line.

by Theoracle | 14th May 21, 10:46pm 1620989193

No thanks.

Am sure many other self employed individuals would agree with me that we don't want it made compulsory.

by Officebound | 14th May 21, 1:14pm 1620954845

Do we know when this cuts over?

If they've each got 20k, we'll see $7 billion of assets being liquidated, and a similar amount purchased, could have some interesting knock on effects in the markets.

by nigelh | 14th May 21, 1:18pm 1620955115

Yes and think of those brokerage fees some crowd will earn. There are probably ways around having to liquidate and repurchase, even if a slightly different portfolio.

by Noncents | 14th May 21, 2:00pm 1620957649

Yes, you know the member will be paying the fees on all these changes, not the Govt.

by Brutus Iscariot | 14th May 21, 8:28pm 1620980907

Yes, I'm not sure. Normally transactions of that size would be done via in specie transfers of assets. Both parties would prefer this to minimize transaction costs. Suspect work is being done behind the scenes to sort that out.

by mills | 14th May 21, 5:08pm 1620968924

Interesting comments, and one needs to remember kiwisaver is a scheme constructed by government, and I guess they are entitled to tweak the scheme to suit their own objectives....but. Here we are after a massive worldwide financial upheaval and with many governments printing money with apparently no adverse consequences. And just as interest rates and inflation showing signs of finally moving upwards, with all sorts of possible consequences for our small nation of enthusiastic borrowers, our all wise gummit has decided to push the ignorant masses away from conservative repositories of THEIR money, into the type of "growth" investments likely to be adversely affected by revaluation of generally overpriced equities......what could possibly go wrong when our so commercially smart Cabinet Ministers get involved in second guessing the economy?

by Hardly | 14th May 21, 5:10pm 1620969020

Wow that smart shares fee is low.

So if you are prohibited from investing in fossil fuels does that mean you can’t track the S&P500 or is there an S&P500 version minus the fossil fuels and cluster bombs that you can invest in?

by HarshaSirisena6556 | 14th May 21, 7:24pm 1620977049

Sorry I pressed the Report button in error. Actually you make a good point, which wouldn't have occurred to Jacinda or Grant.

by mfd | 14th May 21, 8:34pm 1620981253

Or maybe it occurred to them and they spent 5 minutes researching? Or perhaps someone in treasury has a vague awareness of the huge number of ESG funds that are readily available? Simplicity for one already invest in such funds.

https://investor.vanguard.com/investing/esg/

https://simplicity.kiwi/about-us/ethical-investments/

by Brutus Iscariot | 14th May 21, 8:29pm 1620980999

There should be an unethical "capitalist pig" kiwisaver where they just try to invest in the things that make the most money, "woke" or not.

by Lanthanide | 15th May 21, 4:56am 1621011399

I think there's definitely a sprint scale there. Fossil fuels and munitions are by and large bad for the world.

But I don't have a problem with cigarettes, alcohol, porn, gambling. I have seen some KiwiSaver funds that avoid those sectors too.

by maurice24 | 15th May 21, 5:30pm 1621056638

The issue of what is ethical is amazingly more complicated than most imagine. Forget the nukes and child labour issues. How about a vineyard or a Canadian dope producer?

by Mark L | 14th May 21, 9:57pm 1620986239

I’d like to be able to buy into the gold plated Government Superannuation Fund.

by maurice24 | 15th May 21, 5:27pm 1621056455

I would prefer to invest into gold itself. Ask the folks in Argentina.

by Squishy | 16th May 21, 4:12am 1621095135

I'm surprised the major banks let this slip through their fingers. Without default funds customers getting people to switch to highrr fee schemes will be much harder and require far more paperwork. Shareholders should be outraged.