Simon Swallow has found that local savers using QROPS are disengaged and not getting the advantages of switching to options with better returns

By Simon Swallow*

KiwiSaver members are on the move. In fact, every year, nearly 5% of KiwiSaver members switch providers - actively managing their accounts to optimise returns, reduce fees, and align with their retirement goals. It’s a simple process, and people are making the most of it.

But then you look at members of QROPS (Qualifying Recognised Overseas Pension Schemes) in New Zealand, and the story is entirely different. These average balances are three times larger than KiwiSaver members, but they switch at a tenth the rate of KiwiSavers.  Why are the 20,000 plus QROPS members in New Zealand switching so much less frequently?

KiwiSaver members are actively engaged

KiwiSaver, with over three million members, is the go-to retirement savings scheme for most New Zealanders. Members can easily switch their scheme in a matter of days, moving to better-performing providers with more competitive fees. The ability to change providers with ease encourages a high level of engagement - if something isn’t working for you, changing is quick and painless.

In fact, around 4.5% of KiwiSaver members change their scheme each year, actively managing their savings. This is a clear example of New Zealanders taking charge of their retirement futures, continuously striving for better returns. With an average balance of NZD $37,079, KiwiSaver members are making moves, and the system is working for them.

QROPS: Why is the activity so low?

Now, let’s look at QROPS. In 2024, only 0.65% of QROPS members switched QROPS provider. And when you exclude one outlier from the data, this number drops even further to 0.39%. To put it into perspective: this is less than one-tenth of the activity seen in KiwiSaver. That’s a massive difference. So, why aren’t people switching their money around in QROPS?

The low activity in QROPS suggests that members aren’t managing their funds as actively as they could be. Despite the higher average balance in QROPS - well over three times the KiwiSaver balance at NZD $124,860 - there’s far less engagement. This low engagement could be due to several factors, such as a lack of understanding about the ease of switching providers or the belief that the process is too difficult.

The reality: Switching QROPS is easier than you think

Yes, switching QROPS providers isn’t as simple as changing your KiwiSaver fund. It involves slightly more paperwork and coordination. But let’s be clear: it’s still far easier than when you originally brought your funds over from the UK into a QROPS scheme. It’s not as instantaneous as KiwiSaver, but it’s still a lot less complex than the process of moving your money into a QROPS in the first place.

The big question: Why aren’t people switching more?

So, why aren’t people switching their QROPS as often as KiwiSaver? Here are some possibilities:

1. Lack of Awareness:
   Many QROPS members may not realise that switching is possible, or they might think it’s a more complicated process than it really is. This could lead to complacency.
2. Perceived Difficulty:
   While switching KiwiSaver schemes is simple and quick, switching QROPS might seem more daunting because it requires more documentation and coordination. But is it really that hard? Not when compared to the initial transfer process.  Typically a QROPS to QROPS transfer could be completed within two weeks and the forms are very simple.
3. Underestimating the Impact:
   Many members might not be fully aware of how much better their retirement savings could be with a better-performing QROPS scheme. The process may feel tedious, but the financial payoff could be significant over time.  We have seen average annual return rates over the last three years on balanced funds vary by more than 5% a year.  Investing $100,000 over 20 years the difference between 2.5% a year return and 7.5% a year return would be $163,000 versus $427,000. 
4. Stability:
   Some members may feel that their current QROPS scheme is stable enough and may not actively seek out alternatives. But what if there’s a better option that could improve their retirement savings? 

KiwiSaver vs. QROPS: A quick comparison

Here’s a snapshot of how KiwiSaver and QROPS compare when it comes to engagement and withdrawals:

Conclusion: Don’t let your QROPS go unchecked

If you’re one of the 20,000+ New Zealanders with funds in a QROPS, ask yourself: Why aren’t I switching more often? The withdrawal and switching activity is far lower in QROPS than in KiwiSaver - less than one-tenth of the activity.

It’s time for QROPS members to take a page out of the KiwiSaver playbook. While switching a QROPS provider isn’t as quick as with KiwiSaver, it’s still significantly easier than it was when you initially moved your funds into a QROPS scheme. By switching, you could improve your retirement outcomes and make your funds work harder for you.

Don’t let the lower engagement rate fool you - there are opportunities to optimise your retirement savings, and switching could make a big difference.

Simon Swallow is a director of Charter Square. You can contact him here.