Why being in the right KiwiSaver fund can help to bridge the gender pay gap

Over the ten years from 2011 to 2021, a woman in a default conservative fund would have $43,000 less than a man in a high-performing growth fund, BetterSaver estimates show.
Over the ten years from 2011 to 2021, a woman in a default conservative fund would have $43,000 less than a man in a high-performing growth fund, BetterSaver estimates show. Photo credit: Getty Images.

KiwiSaver members whose money is sitting in a default fund are urged to choose the right fund for their situation before changes kick in from December 1. 

From this date, the default KiwiSaver fund, currently a 'conservative' fund, will change to a 'balanced' fund.  It means the risk profile of the investment will increase.  

Compared to a conservative fund, a balanced fund holds a higher percentage of risk-based assets (e.g. shares and property). It means the investment balance is more exposed to market changes, which may not suit some people. This includes those nearing retirement who are planning to take all their money out.

"'Balanced' is sitting on the fence...you're not maximising your potential return long-term, and you're not fully mitigating against fluctuations in the market," Joe Taylor, CEO of KiwiSaver advice platform BetterSaver, explains.

To encourage default KiwiSaver members to make an active choice, BetterSaver has released research showing how the gender pay gap, (9.1 percent in the June 2021 quarter) is intensified by the type of KiwiSaver fund a member is in.

Based on average wage figures, if both genders had stayed in a typical default KiwiSaver fund (currently a 'conservative' fund) over the ten years from 2011-2021, women would be $14,000 worse off than men, BetterSaver estimates show.

That's because KiwiSaver member and employer contributions are based on a percentage of salary or wages (the minimum is 3 percent of gross earnings).

If a man were invested in the highest-performing growth fund (up to 89.9 percent invested in growth assets, such as shares and property), and a woman remained in a default fund, that gap would widen to $43,000 (50 percent) less for the woman.

Conversely, if she had switched into a highest-performing growth fund 10 years' ago, while he remained in a default (conservative) fund over the same period, estimates show she would then be further ahead.

"We know that when it comes to retirement savings, women are disadvantaged because they are putting less aside than men due to the gender pay gap, and they’re more often the ones taking time out of their career to have children or look after elderly parents," Taylor says.

But this doesn't necessarily mean all KiwiSaver members, including those in default funds, should move to a growth fund.  For someone with three years' or less to retire, a conservative fund may be best.  

"There's no one-size-fits-all with KiwiSaver...go to [an advice provider], KiwiSaver provider or another financial adviser and get advice," Taylor says.

KiwiSaver members have either one of two goals: saving for a first-home or retirement. But their investment timeframe, attitude to risk and the amount to be withdrawn, will be different. 

"If you are in a default fund and you haven't made an active choice, you are just leaving money on the table," Taylor adds.

From December 1, over 300,000 KiwiSaver members who have yet to actively choose their  fund will be shifted to a balanced fund.  

Under the KiwiSaver default changes, the number of default providers will reduce to six (BNZ, Booster, BT Funds Management, Kiwi Wealth, Simplicity and Smartshares). Default members enrolled with AMP, ANZ, ASB, Fisher Funds or Mercer, will be switched to one of the new providers.

KiwiSaver members who are unsure who their provider is could check in MyIR, call Inland Revenue, or watch out for correspondence explaining the change.

For those wanting to compare funds online, the Sorted KiwiSaver fund finder and MorningStar KiwiSaver quarterly survey are among the free online tools members can use.

Although the official gender pay gap figure is 9.1 percent, analysis of over 187,000 employees by Strategic Pay, found with benefits included, the gap is higher, at 18.5 percent. Strategic Pay managing director Cathy Hendry confirmed the research found there was a 17.5 percent gender gap on KiwiSaver earnings.