KiwiSaver Q&A: Today we look at how to change providers, when and what to watch for along the way.
Q)How do I change KiwiSaver providers?
A) In theory, transferring to a new provider in KiwiSaver is dead easy.
Once you find a new provider (choosing among the field of candidates is the hard part), you fill out the appropriate forms and they do the rest.
Having changed KiwiSaver providers twice now, (one for my own account and another time on behalf of my kids) I can share with you what I have learnt so you can apply some of the lessons before you hit the button.
1) Check the fees: I appreciate that fees buried in fineprint in the investment statement that you should have scrutinised closely but didn't don't exactly make for exciting bedtime reading, but they are relevant and hugely important. Some, but not all, KiwiSaver providers will charge you for transferring out of their scheme. There's a whole slate of fees KiwiSaver providers charge for (in addition to the annual membership fees and the on-going investment management fees) that you likely aren't aware of. For example, some providers charge a $100 processing fees even on hardship withdrawal applications. Other charge as much as NZ$500 to transfer a superannuation scheme from overseas into KiwiSaver.(See also this story about how the agreement will affecting existing KiwiSavers).
Fees vary widely among the providers, so you'll only know by comparing a few (make sure you compare similar type funds) to determine whether they're at the high or low end.
2) Check your balance. During my first break up with a KiwiSaver provider the process happened within a couple of weeks. It was fast, efficient and there was no fuss. In the second instance, paper work was lost, there was no follow up at their end and when I finally did manage to push the process along it was mucked up. Apart from the disturbing fact that I had received a letter from the new provider welcoming my sons to their new scheme, when the old provider advised it was still active from their end, I was surprised to see a dramatic reduction in the balance upon the opening of the new account.
In the time that I had received my last statement and the time it took for the transfer process to happen, the fund's performance had gone from 7.33% to 1.74% so there was a substantial drop in value. I initially thought it was owing to fees but it was just owing to the performance. You might want to bear this in mind when you are changing funds. If you don't have on-line access to your latest balance statement, phone your existing provider to find out.
3) Due diligence. As per the gaffe above, it pays to follow up and confirm that the transfer process has in fact taken place.
4) Fund. Before you switch providers, make sure you have a good understanding of your reasons for changing providers and also what you are expecting from your new one. Don't take the fund selection process lightly either. Under the new Financial Advisors Act, Registered Advisors (RAs) can give you general advice on this issue and guide you into a fund, but remember that they are not authorised financial advisors (AFAs) who have a higher qualifications and whom are better positioned to give you personalised advice on this important decision
So, as easy as switching providers may be, mind the gaps along the way.
Here's the link to the IRD's KiwiSaver website with specific mention of how to change providers.