This month we have been covering everything you need to know about default funds. This is because default funds are changing this Wednesday, December 1st. If you’re in a default fund, your fund is going to be switched to a different fund.
Doesn’t it make sense to take this opportunity to switch to the best possible fund for you?
Many people start in a default fund when they sign up as it is easier than doing the research to choose one.
If you haven’t actively selected a fund, you’re in a default fund. This is exactly what default funds are designed to do - remove a barrier to saving by making it easy to get started. The idea is that you will make a change to a more optimal fund, but a lot of people park their KiwiSaver fund here and never give it a second thought. Right now, more than 1 in 10 KiwiSaver members are in a default fund.
So for over 300,000 Kiwis, here’s why you are better off making an active choice right now.
New default funds promise lower fees - but does that mean they are better?
The new default funds will have lower fees than many other KiwiSaver funds. But low fees don’t always equate to more money in the bank.
Not all KiwiSaver providers offer the same services. Your provider might offer advice on first-home buying, annual check-ins to make sure your fund is still working for you, or no extra services at all. Your fund can be either passively or actively managed, affecting the fees and fund performance.
One thing to be aware of here is that advertising low fees is a marketing tactic used by many providers to lure clients in, but their overall impact on your KiwiSaver fund varies. What’s important is that you get the best value for your fees.
It’s more effective to look at a fund’s returns after fees - the money earned less fees paid - over the long-term to gauge a fund’s performance.
Your ethics should matter
Would you like to know what your money is being invested in? Ethics are highly personal and only you know what you’re ok with and what you’re not. If you’re in a default fund, you might be supporting things that don’t align with your values.
Being a conscious investor makes a greater impact than being a conscious consumer. Check out Ethically Kate’s blog on why she switched from a default fund and how she ensured her money was doing good things in the world.
In a default fund, you don’t have any say in where your money goes. Make a choice to take charge of your money by switching your KiwiSaver fund to one that matches your ethics.
Default funds have missed out on money
In last week’s article, we put this pretty bluntly:
A 45-year-old that has been earning the average wage over the last 10 years could have left up to $26,000 on the table by not being in the right KiwiSaver Fund.*
You read that right. If that 45-year-old had chosen a growth fund right away, they would have 21%-53% more money. Simply for making a choice.
Have you been missing out by remaining in a default fund? The sooner you change, the sooner you can start seeing your KiwiSaver balance grow.
The new default funds will be balanced funds rather than conservative. These are higher risk funds so in the long-term would be expected to deliver higher returns. But this still isn’t the best option for everyone.
You might not want to be in a balanced fund if you plan on withdrawing your KiwiSaver funds soon, for instance. And if retirement is still far away, choosing a growth fund over a balanced fund could mean a significant difference to the sum you have at retirement. We’re talking potentially a $500,000 difference for a couple with average income.
It is easy to switch your fund now
Right now, over $80 billion is invested in KiwiSaver, and that is projected to grow to $250 billion in 2030. This is a ton of money that can benefit New Zealanders and our economy.
To do your part, all you have to do is switch out of your default fund before December 1 - or it will be switched for you to a new default fund where you have no input.
The best fund for you is one that will allow you to reach your goals while matching your ethics. It will have a good performance history and fees that make sense.
How do you find the right fund? Easy. BetterSaver will guide you to it.
We assess KiwiSaver funds based on all of these factors. All you have to do is take our Fund Finder Quiz - it only takes about five minutes - where we’ll ask you some questions about your goals, timeline, comfortable level of risk, and values.
We’ll match your answers to the fund that fits you best. We’ll even set up your new KiwiSaver account and transfer your funds for you.
No one makes it easier than us to switch to the best KiwiSaver fund for you. Take charge of where your money goes and maximise what you can earn by switching your fund today (or at least by December 1).
*Data based on a comparative analysis of the returns for the highest-performing growth fund and average default fund from 2011-2021, for a hypothetical person with the average New Zealand salary for their age.