As with any tender, there are winners and there are losers.
Some big names missed out and some new names come in from December 1, when the changes officially take effect. So what’s all the noise about and if you’re already in KiwiSaver, what does this mean for you?
Let me start by declaring up front, my perspective is one of a non-default provider who chose not to participate in the tender process. It’s also the perspective of an investor who doesn’t leave my future to someone else to decide who manages my retirement savings.
I am not alone. There are some three million of us now in KiwiSaver and that makes it one of New Zealand’s key brands. Of that three million, some 381,000 are in a default scheme.
That means a KiwiSaver scheme they were automatically allocated to when they started a new job or joined KiwiSaver and they haven’t made an active decision to stay in that fund or move to another fund or scheme since.
It’s this group who are potentially impacted by the change. If you are one of the 381,000 default KiwiSaver members and you are not with one of the providers appointed through this tender process, you will automatically be transferred to a new provider after December 1.
Inland Revenue will be in touch to explain more but expect an email or call (perhaps several) from your existing provider as they work to retain your KiwiSaver business. I will leave you to consider whether you should have heard from them previously.
What if, like me, you are not invested with a default provider? Let’s dispel a common myth. KiwiSaver is not guaranteed by the Government and being a default provider doesn’t change that.
Default providers have entered into a contractual relationship with the Crown with terms covering settings important to the Government around the provision of KiwiSaver services but that contract doesn’t extend to guarantees.
Should you be worried by this? No. KiwiSaver operates in a highly regulated environment and fund managers are supervised by a party licensed by the Financial Markets Authority.
Put simply, every KiwiSaver provider has a supervisor checking that they, as manager, are performing their duties for their KiwiSaver members. This is all very appropriate, with so much money and our futures at stake, so no, given the above, I don’t worry about the absence of a guarantee in relation to my own KiwiSaver account.
Let’s consider some of the settings for new defaults. It includes a requirement that the default investment fund type moves from conservative to balanced. It’s hard to disagree with this in terms of improving outcomes over the long term.
It aligns to the stance already taken by my own provider, which has members automatically enrolled by their employer. But let’s not stop there, let’s encourage KiwiSaver members to work out if balanced remains the right place for them, relative to their investment aspirations and make changes to their investment selection if it doesn’t.
Another setting change is around fees. You would expect in a tender for this to be weighted heavily and it was, but regular readers will know, I am more interested in returns after fees than fees alone.
As a KiwiSaver member, you want value for money and transparency of your charges. Look at your current provider’s website or Sorted.org.nz and also consider what type of manager they are.
Are they an active fund manager researching and making decisions about what to invest in or simply tracking an index up and down? The cost to serve depends on the strategy employed by the fund manager and explains some of the variation you see in fees charged.
No doubt you, like me and many other investors, will have a view as to which investment management style you prefer. Investment in fossil fuels and illegal weapons will also be excluded from default funds and default providers will describe their responsible investment policy on their websites.
An emphasis on ethical investing is only going to increase as we grapple with our desire to lift our level of retirement savings but not at the expense of environmental and social considerations.
This is not a new area but it is a very personal perspective around what is acceptable and what is not.
This does require some time spent looking at your provider and their current framework around socially responsible investing.
How does it sit with your own ethics? I applaud what I am sure will be just the start of an investments exclusions journey as people increasingly form a view about what they want excluded from their KiwiSaver funds.
A final point to reflect on in terms of new settings is that the default providers will be required to engage with their members to help them make informed decisions about their retirement savings at key moments in time. Great!
But if you are not already hearing regularly from your provider and being offered access to advice to support you, then I encourage you to look long and hard.
KiwiSaver is our shot at intergenerational change not only in retirement savings but also financial literacy. It does rely, however, on getting people contributing, being in the right fund and accessing advice along the way.
Therefore, choose your provider carefully. I don’t leave my retirement future to chance and in my opinion, neither should you. Whether you are in a default fund or not, engage with your account, with your provider and with the future this represents, because . . . KiwiSaver is real money and it’s your money.
* Trish Oakley is Head of Summer (Forsyth Barr’s KiwiSaver scheme). This is not a recommendation to buy or sell any financial product and does not take your personal circumstances into account.
