If you’ve paid any attention to the news over the past few months, you might have heard mention of changes to default KiwiSaver funds:
“KiwiSaver changes on December 1 could see some couples boost retirement savings by as much as $500k.” - NZ Herald
“Changes to KiwiSaver mean those who join the scheme at age 18 could be almost $150,000 better off at retirement, the government claims.” - RNZ
“If you’re among the 381,000 KiwiSaver members who joined KiwiSaver upon starting work and have done nothing else, from December 1, the company in charge of investing your money could change.” - Newshub
What does it all mean? Could you be missing out on money? What should you do?
Read on and we’ll tell you everything you need to know.
What is a default fund?
When you sign up to KiwiSaver, if you don’t select a fund to invest in then you are automatically placed in a default fund. However, many people never move from their default fund and miss out on higher returns (returns = money earned from your investment). Right now, 381,000 KiwiSaver members are in default funds - that’s more than 1 in 10.
There are currently 9 default KiwiSaver schemes, but this is set to change on 1 December 2021. When this change takes place, 263,000 KiwiSaver members will be automatically shifted into a different default fund. The new defaults will be balanced, rather than conservative funds.
How do I know if I’m in a default fund?
If you haven’t actively selected a KiwiSaver fund, you are in a default fund. You can log in to your IRD account or call them to find out which fund you are in.
I’m in a default fund - what does that mean for me?
If your default fund is with one of the following KiwiSaver providers, your fund will be shifted to a new provider:
- Fisher Funds
If your default fund is with one of the KiwiSaver providers keeping their default status, your fund will remain with them. They are:
- BT Funds (Westpac)
But all default funds are experiencing a change whether your provider stays the same or not - a shift from conservative to balanced funds. Balanced funds are higher risk than conservative funds. This means that in the long run you potentially can see higher returns. (The greater the risk, the greater the reward, right?). The idea behind this is to make sure that new KiwiSaver members don’t lose out because they didn’t select a fund.
If you’re planning on withdrawing your KiwiSaver soon, you may not want your fund type to be switched. Conservative funds generally see slow, stable growth so that your KiwiSaver balance won’t significantly drop with changes in the market. Higher risk funds invest in more growth assets like shares and property so you stand to see higher returns over the long term, but more fluctuations in balance - so your balance could drop right when you need to withdraw it, leaving you short of funds.
In addition to changing to balanced funds, default funds will exclude fossil fuels and illegal weapons investments, have lower fees, and offer more services and communication.
So while the changes will be positive for most people in a default fund, it’s time to consider whether a default fund is your best option. Could your money be working harder for you?
Whether a conservative fund or balanced fund - or a completely different fund - is right for you depends on your goals, timeline, and circumstances.
What should I do?
This is a great opportunity to take charge of your KiwiSaver fund and figure out if the default fund is right for you and if the coming changes will suit your needs. It’s to your own benefit to make sure you are in the best fund for you as it can mean a six-figure difference later on.
Also, a lot of members in default funds started out contributing the minimum 3% of wages. While default funds and minimum contributions make it super easy to get started in KiwiSaver, you might be better off increasing your contributions to make sure you meet your financial goals. While assessing your fund, check your contribution rate.
As we mentioned, the right KiwiSaver fund for you depends on your personal circumstances. Do you want to use your KiwiSaver fund to buy your first home, for retirement, or both? What’s your timeline like for each of your goals? Do you care what your KiwiSaver fund is investing in (like military weapons or animal testing, for instance)? All of these factor into your decision.
If that sounds like a lot of work, it is - but we have already done it all for you.
At BetterSaver, we are committed to helping every Kiwi get the most out of their KiwiSaver fund. It’s the easiest way to help NZ build a better financial future.
With over 180 funds available, it can be overwhelming to choose one, causing many people to stay with their default fund. We have designed a Fund Finder Quiz to make it easy for you to find the optimal fund. Our team has thoroughly researched KiwiSaver funds to match you up with one that suits your personal goals, timeline, lifestyle, and values. We’ll handle switching over your funds to your new provider making the process effortless for you (other than signing up and taking the quiz!).
Take charge of your finances and make active choices so you get the most out of your KiwiSaver investment. Getting advice from a trusted financial adviser can help you sort out your KiwiSaver fund plus all of your other finances. It’s a favour to your future self to make better choices now for a better future.