New default KiwiSaver providers announced
Today the Government announced the new default KiwiSaver scheme providers. This comes after the Government’s request for proposals issued in October 2020 to appoint the next set of KiwiSaver default providers.
See MBIE’s KiwiSaver page here.
The FMA press release is also available here.
Who needs to read it? Why?
The news will be relevant to all managers and supervisors of KiwiSaver schemes, and of interest to other managed funds generally.
What does it cover?
The number of default KiwiSaver providers has been reduced from nine to six providers. The new default KiwiSaver providers are:
- Bank of New Zealand;
- BT Funds Management (Westpac);
- Kiwi Wealth;
- Simplicity; and
- Smartshares (NZX).
AMP, ANZ, ASB, Fisher Funds, and Mercer did not have their status as a default provider continued.
The default funds requirements are changing too. They will:
- Be invested in a balanced fund rather than a conservative fund. Balanced funds have more growth assets. This means higher investment returns are more likely in the long run.
- Charge lower fees.
- Be required to engage with their members to help them make informed decisions about their retirement savings at key points.
- Not invest in fossil fuel production or illegal weapons.
- Be required to maintain a responsible investment policy on their website.
The new default provider arrangements will take effect once the terms of the current providers end on 30 November 2021.
The IRD fact sheet published today indicates that those persons who are default members and are not with one of the new providers will automatically be transferred to a new provider after 1 December, unless those members contact their existing provider to remain with them. New default members will be allocated evenly across the appointed default providers. IRD say they will send an information pack to those default members who are being reallocated once they have been moved.
Those default members who voluntarily move to leave their default scheme and choose their own KiwiSaver provider before 1 December 2021 will not be affected by the reallocation on 1 December.
The intent to reduce the number of default providers, and to change the investment criteria for default KiwiSaver providers going forward has long been signalled.
However, the transition process will be critical, to reduce market impacts as:
- Default funds shed conservative and acquire growth assets to move to a balanced mix. There is the potential, if this is not well managed, for significant price volatility to occur, as the flows may be very large.
- Members of those funds which did not retain default status are reallocated to the new default providers. This is likely to require significant, clear communication both from the former providers and the new providers. It is good to see that IRD are playing a role in this with their information pack. However, given this community of KiwiSaver members are inherently less active than those who have chosen their KiwiSaver provider, there is a risk of confusion.
- Former default funds are restructured after the transition out of the reallocated members, either to be wound up or to operate on a non-default basis in the future.
As yet, we have not seen the detail of how Government envisages that this transition will take place and over what time period. Under section 230 of the KiwiSaver Act 2006, regulations may be made for the reallocation and transfer of members. We expect details of the arrangements to emerge in the coming days.
There is a clear emphasis on “value for money” being provided by all KiwiSaver managers. This continues the message to fund managers generally, and follows the recent FMA guidance on “Managed fund fees and value for money” released last month (see also our note on the FMA guidance).
If you have any questions in relation to KiwiSaver or how these changes will affect your business, please contact one of our experts.