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KiwiSaver Default Provider Scheme Improvements Slash Fees, Boosts Savings

Hon Grant Robertson

Minister of Finance

Hon Dr David Clark

Minister of Commerce and Consumer Affairs

Hundreds of thousands of New Zealanders will be significantly better off in retirement following changes to the default KiwiSaver scheme, Finance Minister Grant Robertson and Commerce and Consumer Affairs Minister David Clark said today.

The new default provider arrangements, which will take effect once the terms of the current providers ends on 30 November 2021, mean those joining the scheme at 18 could have an extra $143,000 at retirement through lower fees and higher investment returns.

Around 381,000 members are currently 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.

“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 2014–2021 default term comes to an end, we’ve taken the opportunity to enhance the overall benefits of being in a default fund,” Grant Robertson said.

On the advice of an independent panel, the number of default providers reduces from nine to six: Bank of New Zealand, Booster, BT Funds Management (Westpac), Kiwi Wealth, Simplicity and Smartshares (NZX).

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.

“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.

“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,” Dr David Clark said.

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

“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.”

David Clark said the improvements to the default provider scheme will enhance the financial wellbeing of three 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.”

Notes

What is a default fund?

When people enrol in KiwiSaver but don’t actively choose an investment fund, the Government allocates them to a default fund.

Why has the Government made these changes?

Every seven years the Government reviews the settings for default providers ahead of appointing a new set of default providers through a competitive tender process. The Government has selected six default providers through that process on the advice of an independent panel. The changes will be in place from 1 December 2021, at the same time the six appointed default fund providers commence their terms.

When KiwiSaver began, default funds were intended as a transitional “parking space” for default members and it was expected that over time, members would make active choices about their fund. However, roughly 381,000 Kiwis have remained in a default fund without making an active choice to stay there.

What are the changes to the default fund scheme?

· Six new providers will be appointed for the next seven-year term to provide services from 1 December 2021 (the appointments of the current nine default providers expire on 30 November 2021)

· The investment fund type has moved from conservative to balanced

· KiwiSaver fees will reduce, and will be simpler and more transparent

· Default providers will be obligated to engage with their members to help them make informed decisions about their retirement savings at key points

· Investments in fossil fuel production and illegal weapons will be excluded from default funds

· Default providers will be required to maintain a responsible investment policy on their website.

What will the changes mean for default fund members?

All default KiwiSaver members (members in a default fund who have not made an active choice to remain there) will be transferred to one of the appointed default provider’s KiwiSaver funds.

The transfer of default members is happening to ensure default members continue to receive the protections and benefits of being in a default fund (such as low fees and minimum service standards). These KiwiSaver members will not need to take any action for this to happen.

For some default members, this will involve moving to a different type of fund but their provider will remain the same. For other members, their fund and provider will change. It will depend on whether their current default provider was reappointed to the default fund scheme. Two member scenarios are:

1. Default members of a non-reappointed provider (AMP, ANZ, ASB, Fisher Funds and Mercer)

· Default members of a non-reappointed provider (that is, members in a default fund who have not made an active choice to be there) will be moved to a balanced fund from 1 December 2021.

· Because their current provider was not reappointed to be a default provider, their new balanced fund will be run by one of the appointed providers.

· Inland Revenue and the KiwiSaver providers will complete the transfer on their behalf – they do not need to take any action.

2. Default members of a reappointed provider (Booster, BT Funds Management (Westpac), Bank of New Zealand and Kiwi Wealth)

· Default members of a reappointed provider (that is, members in a default fund who have not made an active choice to be there) will be moved to a balanced fund from 1 December 2021. Their KiwiSaver provider will complete this move on the members’ behalf – members do not need to take any action.

· Their provider has been reappointed to be a default provider, so they will remain with that provider from 1 December 2021.

Will default members need to take any action as a result of the changes?

Default fund members won’t need to take any action in order to be transferred to the new funds and realise benefits including lower fees and more support from their provider.

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.

What about members who’ve actively chosen their fund?

Members 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.

However, in all cases, KiwiSaver members will be free to move to another fund and/or provider at any time.

How much will default members pay in fees?

From 1 December, default members will pay significantly less in fees than they are currently. 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. This is a shift from current industry practice.

New fees

ProviderPercentage fee*
Bank of New Zealand0.35
Booster0.35
BT Funds Management (Westpac)0.40
Kiwi Wealth0.37
Simplicity0.30
Smartshares (NZX)0.20

* this fee is calculated as a percentage of a member’s balance over one year. For example, a member with a $10,000 balance who is charged a 0.2 percentage fee will pay $20 over one year.

Current fees

ManagerPercentage feeMonthly member fee
ASB0.40$2.50
ANZ0.44$1.50
AMP0.39$1.95
Fisher Funds0.52$1.95
Mercer0.47$2.25
Kiwi Wealth*0.52-
Westpac/BT0.47$1.83
BNZ0.50-
Booster0.38-

*the annual manager’s basic fee each member of this provider pays is subject to a minimum fee of $40 per annum.

How will current default members be allocated to one of the appointed default fund providers?

Members being transferred from one of the existing providers who were not reappointed will be allocated to one of the new providers. The transfer will happen automatically and members won’t need to do anything. Inland Revenue will notify affected default members when the transfer is underway.

Where can default members go for further information about the changes?

People can refer to the KiwiSaver fact sheet for further information.

How many people are affected by the change?

Approximately 381,000 default members have not made an active choice (a meaningful, informed decision about their KiwiSaver) to stay with a default provider – this is the group of members who will receive the benefits of the new default funds.

However, all KiwiSaver members can choose to join one of the new default funds.

On what criteria were the six providers appointed?

The Government ran a competitive tender process, inviting applicants – existing default providers and other KiwiSaver providers – to submit on the RFP.

The proposals were assessed against a set of criteria which included a 60 percent weighting on fees. The remaining criteria included their ability to deliver the investment product (including the new requirements such as the need to exclude investment in fossil fuels production), manage transitional arrangements, provide a good customer experience for their members, and the provider’s organisational structure and financial standing.

What happens to the non-reappointed providers?

The providers that were not reappointed are still KiwiSaver providers, licensed and monitored by the Financial Markets Authority. The difference is that these providers 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.

How will the new obligations such as fossil fuel exclusions and member engagement requirements be enforced?

The default providers will be subject to terms and conditions, which include minimum service standards and member engagement requirements. The Financial Markets Authority monitors and enforces the conditions and has a range of regulatory tools to ensure providers meet the required service levels. These include censure and the requirement for a provider to submit a remedial action plan.

What will the value of this $143,000 nominal increase be in today’s dollars?

An increase in savings balance at retirement of $143,000 will mean when adjusted for inflation using current assumptions, a member who joins the scheme at 18 will have an extra $56,000 in today’s terms. Commensurately, they will save around $2,400 in fees by the time they are 65.

© Scoop Media

 
 
 
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