Default KiwiSaver funds stay conservative
Thursday 17 Oct 2013 11:19 a.m.
About 23 percent of the 2.1 million KiwiSaver members are in default funds
By Paul McBeth
KiwiSaver default providers will continue to manage funds conservatively, fending off attempts to implement a tiered approach based on members' age.
Finance Minister Bill English and Commerce Minister Craig Foss said the Government will stick with the conservative mandate which requires those funds to invest between 15 and 25 percent in growth assets.
It comes after a review into the default provider scheme launched in November.
Fund managers had been pressing for a 'lifecycle' approach for default funds, which links the level of risk to an investor's age, claiming the conservative option meant members were missing out on about $72,000 each in foregone investment returns.
"The Government believes it should take a risk-averse approach, as the default provider arrangement is making initial investment decisions on behalf of others," Mr English said in a statement. "The aim of default funds is to provide stable returns and build confidence in KiwiSaver while members actively consider the best fund for their individual circumstances."
About 23 percent of the 2.1 million KiwiSaver members are in default funds with an estimated $3.5 billion under management, according to a cabinet paper.
The Government will retender for the number of default providers with a view to appoint then in April next year. They will also require default providers to offer investment education and impartial financial advice as a means to improve members' engagement with their savings.
"This new requirement should reduce the percentage of fund members who are inappropriately in a conservative fund," the cabinet paper said.
The government doesn't expect to appoint more than 10 default fund providers, whose seven-year terms will begin from July next year.