KiwiSaver: Concern over fee-focused default funds

Some industry voices are concerned the new Government approach to default KiwiSaver schemes will not provide the best outcomes for members.

Wednesday, May 19th 2021, 6:27AM

by Daniel Smith

Sharon Corbett

Following last week’s announcement of a shakeup to KiwiSaver default schemes, some voices are concerned with the Government’s approach.

Joe Taylor, CEO and founder of BetterSaver believes the focus on fees has skewed the conversation in the wrong direction.

“Picking a fund is a multi-layered decision. Just focussing on fees has the potential to confuse consumers over what investing is about.”

Taylor believes the conversation needs to go deeper than fees, especially regarding the decision to move default members into balanced funds.

“The blanket approach that we have seen is risky.

“If you are going to blanket transfer 380,000-odd people from conservative to balanced funds, why not just look at their date of birth and transfer on that criteria.”

Certified financial planner, Nigel Tate agrees with this sentiment, saying the Government “are giving financial advice blind”.

Tate believes the default scheme shakeup is a case of the Government “breaking their own rules”.

“The Government has changed the status of hundreds of thousands of KiwiSavers with no advice, nothing.

“If this was done by a financial planning company they would be hauled over the coals. Fined, prosecuted and probably deregistered.”

Tate also believes the focus on fees is a narrow-minded view of financial health.

“If you are getting far less because of the lower fees then this change is not a good thing for members.

“The move to a balanced fund is more likely to guarantee a better outcome than the focus on lower fees.”

Sharon Corbett, financial markets manager at MBIE told Good Returns the default fund scheme isn’t working as well as it could be for its members.

“While moving to a balanced default fund setting is aimed at benefitting as many default fund members as possible, there is no single fund that will suit everybody and there may be some people whose circumstances mean they would be better suited to a different fund.

“We are requiring default providers to engage with their members to help them make the right fund choice for their individual circumstances.”

Corbett says while the RFP process gave a 60% weighting towards fees, MBIE was “careful to maintain high minimum standards that every provider would have to offer, regardless of fees”.

Those standards include the ability to deliver the investment product, manage transitional arrangements, provide a good customer experience for their members – and providers’ organisational structure and financial standing.

“Anyone in a KiwiSaver fund can choose to change KiwiSaver providers and/or their fund type at any time by contacting their provider ... Members may also wish to get financial advice from a financial adviser,” Corbett says.

Tags: default funds KiwiSaver MBIE