According to IRD data as at 30 June 2023, around 3.3 million New Zealanders are enrolled in the KiwiSaver scheme. And of those three or so million Kiwis, over 300,000 are in what we call a ‘default fund’ - making them default members. So what exactly does all this mean, and what should you know about default KiwiSaver schemes?

What do we mean when we refer to ‘default’ KiwiSaver funds, members and providers?

Default KiwiSaver members are essentially those who haven’t yet made an active choice about their KiwiSaver provider. Once you turn 18 and you’re in employment, you are automatically put into KiwiSaver - unless you actively decide to cancel your enrolment within three months, making it an “opt-out” scheme. 

When setting up your KiwiSaver enrolment, your employer may ask which provider you wish to join, or they may automatically enrol you with a KiwiSaver provider of their choosing. If a fund isn’t chosen by either you OR your employer, Inland Revenue allocates you into a default scheme. These are a small selection of KiwiSaver funds chosen by the government, based on particular criteria.

There’s a diverse range of KiwiSaver providers with various fees, styles of management, fund options and more. The government allocates a set number of KiwiSaver providers to be default providers, based on factors which include their investment experience, fees, member education and organisational capabilities. 

The KiwiSaver default funds offered by these government-appointed providers are required to be low-cost ‘balanced’ investments. This means that the funds invest in a relatively balanced mix of growth (higher risk) assets like shares and property, and lower risk assets such as bonds, cash, and other income-based investments. Default funds also mustn’t invest in fossil fuel production or illegal weapons. 

How many default providers are there?

There are now a total of six government-appointed default KiwiSaver providers, which receive an even split of any new default KiwiSaver members enrolled in the scheme. After the government carried out a review around default providers in 2021,they cut the total number from nine to six, and included Simplicity in their revised list of providers. As mentioned earlier, our appointment was based on having reviewed our fees, experience with investing, and member communication and education.

The current six default KiwiSaver providers which were appointed in December 2021 include:

• BNZ
• Booster
• BT Funds (Westpac)
• Kiwi Wealth
• Simplicity
• Smartshares (NZX)

All KiwiSaver managers appointed by the government to be a default provider were chosen based on a specific set of criteria that the government felt would “enhance the financial wellbeing of default KiwiSaver members in retirement” (as quoted from the IRD’s press release at the time).

Do you have to stay with the provider you are assigned to?

Regardless of whether you were originally put into a default KiwiSaver fund or you or your employer chose your provider, you have complete and ongoing choice over which KiwiSaver provider you want to be with. If you would like to switch from a default provider and/or fund to another provider (or just to another fund within that provider’s portfolio), you can do so at any time - it usually takes less than five minutes.

It’s a good idea to compare the pros and cons of both your current provider and any potential new provider when considering making the switch, and find one that aligns with your personal needs and values. Simplicity for example prioritises low fees, takes a predominantly passive investment approach, and sets specific ethical investment criteria for all funds. We are one of the few nonprofit organisations you’ll come across within the financial industry. This means we don’t have shareholders; we’re owned by the Simplicity Foundation which receives 15% of the fees we take to allocate to Kiwi charities in need. Other providers will focus on and prioritise different things that will suit different people, so it’s really worth doing your research before making a decision.

What type of fund are you assigned to? Can you change to another type of fund?

If you are allocated to Simplicity as a default KiwiSaver member, you’ll automatically be enrolled in our Default Fund. However, there may be other fund types that could better suit your needs. Simplicity offers six types of KiwiSaver funds ranging from lower to higher risk options: Defensive, Conservative, Default, Balanced, Growth and High Growth.

You should choose your KiwiSaver fund based on the level of risk and returns you are personally comfortable with - which may also depend on the length of time you plan to keep your funds invested for. The higher percentage invested in growth, the higher the potential returns but also the higher the risk. There is no one correct fund for everyone; each individual’s circumstances impact which fund is best for them and you’re also likely to suit different funds at different times of your life.

Choosing the right fund for you can be overwhelming. If you want to explore the fund types that Simplicity offers, you can do so via our KiwiSaver fund page. You could also use our Fund Selector tool to help decide what type of Simplicity fund suits you best, if you choose to be a member of Simplicity’s KiwiSaver scheme. Sorted.org also has some great tools to help you compare different KiwiSaver options according to your priorities, and choose the best provider for you.

Being engaged with your KiwiSaver fund and understanding how it can help grow your wealth can really help you in the long-term. Not only can your KiwiSaver investment be used to help you build a solid nest egg for retirement, but you can also put it towards a deposit to help buy your first home. So whether you’re in a default fund or have actively chosen your KiwiSaver provider, we encourage you to understand your KiwiSaver well, and work towards the best possible outcome for you. 

The information provided and opinions expressed in this post are intended for general guidance only and not personalised to you. These materials do not take into account your particular financial situation or goals and are not financial advice or a recommendation. This post is not intended to convey any guarantees as to the future performance of any of the investment products, asset classes, or capital markets mentioned. Past performance is no guarantee of future performance. Information is current at the time of posting, and subject to change without notice. Simplicity NZ Ltd is the issuer of the Simplicity KiwiSaver Scheme and Investment Funds. For Product Disclosure Statements please visit our website simplicity.kiwi.