Kiwis enrolled in a KiwiSaver scheme who haven't chosen who holds their money or how it's invested are being urged to check their fund before next July.
According to a 2020 Financial Markets Authority (FMA) KiwiSaver report, around 690,000 people were automatically enrolled in a default KiwiSaver scheme when they started a new job.
Of those, 381,034 members haven't made an active choice to stay there. Their money is with one of nine default providers and is invested in a default cash-based 'conservative' fund.
From July 1 2021, the default fund will change to a 'balanced' fund - and it might not be the right one.
A balanced fund:
A balanced fund is riskier than a conservative fund. Money is invested in a mix of cash and growth assets, such as shares and property. Savings are more likely to fluctuate, but over the longer term, there's more potential for retirement savings to grow.
Milford Asset Management KiwiSaver head Murray Harris said a balanced fund is likely to suit more people than a conservative fund. But for those wanting to buy a first home or retire within the next five years, it's unlikely to be the right one.
"People need to take note, engage with their KiwiSaver and check whether that balanced strategy is [right] for them because they may be better to remain in a conservative fund," Harris said.
A growth fund:
Upon checking their fund and knowing what their goals are, people who have a long time until they retire may decide to go one step further and choose a 'growth' fund. This carries higher risk, but over a longer period, provides the opportunity for higher returns.
Checking your KiwiSaver provider:
People in a default fund may have had limited contact with their KiwiSaver provider, and some may not know who it is. The best way to find out is to check email communications or an Annual Statement, or log onto the IRD website (my IR). This will show pay deductions and where they're being paid.
KiwiSaver members should actively choose their fund. As KiwiSaver providers charge fees, it's also useful to check if the provider's performance and service stacks up.
"The provider should be able to help with advice, or guide you to tools you can use to check your risk profile and start a conversation about a more appropriate fund," Harris added.
Online tools such as the Sorted KiwiSaver fund finder, and FMA KiwiSaver fund tracker are also useful for checking which fund is best. The Morningstar KiwiSaver quarterly survey shows a provider's performance against others in the same fund category over the last 10 years.
KiwiSaver provider websites can also be checked for annual reports and free online tools, often provided in a members-only area. Some may use an online chatbot and others can be contacted for personal advice.
"Go to the provider directly and see what else they [offer]: do they provide advice and education, do they manage the funds themselves or outsource that to overseas, and how regularly do they report to you," Harris suggested.
From July 1 2021, the default KiwiSaver fund will change from a conservative to a balanced fund. People who want to keep their money in a conservative fund (or change to a different fund) can simply contact their provider to notify them. If they do nothing, their savings will automatically be invested in a balanced fund.
It's a good idea to review KiwiSaver regularly - and especially as buying a first home or retirement move closer.