KiwiSaver is to get a revamp with default funds automatically upgraded to riskier profiles to rake in more cash for users.
When KiwiSaver began in 2007, default funds were intended as a transitional "parking space" for default members and it was expected that over time, users would make active choices about their fund.
But roughly 381,000 Kiwis have remained in a default fund without making an active choice to stay there. The Government is now taking action to ensure KiwiSaver users get "better bang for their buck" by making default funds riskier.
There are five investment categories for KiwiSaver. Default users are automatically put in conservative funds, considered medium to low risk with often low returns. Default users will now be put into balanced funds, providing medium to high returns but with medium to high risk.
The highest option is aggressive funds, which invest more than 90 percent of savings in growth assets. These funds offer high returns but also come with high risk.
The Government has selected six KiwiSaver default providers - BNZ, Booster, BT Funds Management, Kiwi Wealth, Simplicity and Smartshares - while AMP, ANZ, ASB, Fisher Funds and Mercer have been stripped of default fund licences.
Those that were not reappointed are still KiwiSaver providers. The difference is they are no longer appointed as default providers so they will no longer be automatically allocated KiwiSaver members by the Government and will lose their existing default members.
"The six default providers were selected because they offer the best value for money for their members in terms of lower fees and higher levels of service," Commerce and Consumer Affairs Minister David Clark said on Friday.
"We've also changed the default provider settings to enhance Kiwis' financial wellbeing in retirement. This includes moving the default investment fund type from a conservative to a balanced setting to increase the likelihood of higher returns over the long-term.
"To illustrate just how much default members stand to gain, an 18-year-old earning $50,000 a year and contributing three percent of their income to KiwiSaver is estimated to have an extra $143,000 when they reach 65. They will also pay around $3,900 less in fees."
Finance Minister Grant Robertson said the Government is also ensuring default funds are invested more responsibly.
"We know many Kiwis care about where their money is invested, so we are excluding any investments in fossil fuel production. This reflects the Government's commitment to addressing the impacts of climate change and transitioning to a low-emissions economy."
What does it mean for you?
If you're with one of the KiwiSaver providers that's been given the boot, your KiwiSaver will automatically be transferred to a new provider by Inland Revenue from December 1. Your KiwiSaver will change to an investment fund from a conservative fund.
"If a member wishes to remain with their current provider or in their current fund, they can choose to do so by contacting their KiwiSaver provider," said Dr Clark.
"Whilst default members will be transferred automatically, any KiwiSaver member will be able to choose to join one of the new default funds that will be available in the coming months."
If you're with one of the providers that has been chosen to run KiwiSaver default funds, your KiwiSaver fund will be automatically upgraded to a riskier profile, which means you'll probably get more money in your account. You don't have to do anything.
You'll also pay significantly less in fees from December 1. In addition, no default provider will charge a fixed annual or monthly fee, which means the new fees will particularly benefit members with low balances.
KiwiSaver users who have actively chosen their KiwiSaver fund, regardless of whether or not their provider is reappointed as a default provider, will be unaffected and will remain in their current fund with their current provider.
Participants can normally access their KiwiSaver funds only after the age of 65, but can also use them as a deposit for a first home.