AMP, ANZ and ASB lose out in KiwiSaver default providers overhaul

Friday, 14 May 2021

The life and times of the KiwiSaver superannuation savings scheme, which was first launched in 2007.

The number of KiwiSaver default providers will drop from nine to six from the end of this year – and some large bank providers are no longer among them.

The Government has been reviewing the default provider scheme, including changing the settings of the funds to maximise member returns, and imposing responsible investment obligations.

The current default providers are AMP, ANZ, ASB, BNZ, BT Funds (Westpac), Fisher Funds, Booster, Kiwi Wealth (Kiwibank) and Mercer.

But from November 30, they will be replaced by BNZ, Booster, BT Funds Management (Westpac), Kiwi Wealth, Simplicity and NZX’s Smartshares.

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AMP has lost its KiwiSaver default provider status.

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Despite losing its default status, AMP Wealth Management chief executive, Blair Vernon said the company was committed to KiwiSaver.

“While we’re disappointed not to be reappointed, and we deeply value our default KiwiSaver clients, our current default portfolio represents less than 7 per cent of our total assets under management and around 3.5 per cent of total revenue so this decision doesn’t have a major impact on our business or our commitment to KiwiSaver.

ANZ spokesman Stefan Herrick said: “While we’re disappointed we haven’t been appointed a default provider, we’re looking forward to continuing to make KiwiSaver a success and helping New Zealanders prepare for a more secure financial future.”

The Government says KiwiSaver default members should end up better off with the new settings.

Default providers offer funds for people to be placed in if they have not made an active choice.

About 381,000 members are in the default fund they were automatically allocated to when they started a new job, because they did not make any active decisions about their fund.

Finance Minister Grant Robertson said: “The Government wants all New Zealanders to reap the benefits of their KiwiSaver, whether they’re actively engaged in their fund or not. As the 2014 to 2021 default term comes to an end, we’ve taken the opportunity to enhance the overall benefits of being in a default fund.”

Commerce and Consumer Affairs Minister David Clark said the Government went to tender last October signalling the need for providers to demonstrate they would go further to deliver more for 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,” he said.

“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,” Clark said.

People with default KiwiSaver providers do not have to do anything. If they do not express a preference for where they want their money, it will be transferred to the default scheme of one of the six remaining default providers.

Balanced funds contain more growth investments like shares than conservative funds, and over the longer-term are expected to deliver higher returns.

“To illustrate just how much default members stand to gain, an 18-year-old earning $50,000 a year and contributing 3 per cent 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.

“Another enhancement is ensuring default members receive higher service levels from their provider, including guidance at key points on their retirement journey to help them with things like selecting the right fund and contribution rate.

“However, 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,” Clark said.

The Government is also ensuring default funds are invested more responsibly, Robertson said.

Clark said the improvements to the default provider scheme would enhance the financial wellbeing of 3 million KiwiSaver members, not just those in a default fund.

“We’re sending a clear message to KiwiSaver members that the Government believes they deserve much better bang for their buck. 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.”

KiwiSaver default status has been lucrative for providers, helping them to gain members fast in the early days of KiwiSaver, which began in 2007.

The Government used the default provider review in a bid to drive down fees, with KiwiSaver providers getting the message that if they wanted to remain default providers, they needed to cut fees.

Many providers have cut fees, though the Financial Markets Authority remained convinced the KiwiSaver market was not competitive enough to result in fees coming down without the regulator intervening.

Some cash KiwiSaver funds have delivered more in fees to providers than returns to their investors.

KiwiSaver providers who have cut fees in recent years have included BNZ, ANZ and Westpac.

The default KiwiSaver providers have also been under fire from the Financial Markets Authority for failing to do a good job of educating default KiwiSaver members.

More to come