KiwiSaver providers shirk duty

The pensions watchdog says the default KiwiSaver providers are making a poor job of their legal duty to educate savers.

KiwiSaver has grown to more than $40 billion. A large proportion of the money is in the nine default schemes, into which KiwiSavers who don’t choose their own scheme are randomly directed by the Inland Revenue Department.

Their money ends up in lowrisk, low-return default funds, when many may be better off investing in a higher-risk, higherreturn balanced or growth fund.

In return for getting profitable fee-paying savers, the nine default providers – ANZ, AMP, ASB, Fisher Funds, Mercer, BNZ, Booster, KiwiWealth and Westpac – promised to educate savers to make active fund choices.

But in its 2017 KiwiSaver report, the Financial Markets Authority (FMA) said it was disappointed with their efforts, though it stopped short of recommending their default status be stripped.

The schemes must report quarterly on their progress, including the number of default savers who switched to another fund.

The FMA said that four of the nine default providers did a worse job in the 12 months to the end of March, compared with the previous year. These were ANZ, AMP, Mercer and Booster.

None of the nine managed to encourage more than 9 per cent of their default investors to make an active choice during the year.

‘‘We understand that engaging with default members can be diffi- cult. But the lack of progress in this area by the default schemes is disappointing,’’ FMA chief executive Rob Everett said.

‘‘Especially when the income from fees paid by default members has increased to $31.5 million, and providers still seem to have little trouble engaging other providers’ members to get them to transfer.’’

During the year to the end of March, 172,017 people switched from one scheme to another, shifting $1.99b in wealth between schemes, while fewer than than 17,000 default investors made an active fund choice.

‘‘We have written to the chief executive of each default provider, seeking their commitment to meet their obligations to their default members,’’ Everett said.

‘‘At the very least, we expect them to deliver on what they said they would do in their tenders to the Government seeking default status. Or, if they have tried that and it didn’t work, to try something more effective.’’

Everett warned KiwiSaver providers that the FMA would take action if the situation did not improve. Sanctions could include the FMA issuing binding directions to them, and stopping them from getting new savers.

Sam Stubbs, founder of the lowcost Simplicity KiwiSaver scheme, said the KiwiSaver industry was set to collect about $370m in fees this year. Educated investors were more likely to question high fees.

‘‘Education is the default providers’ enemy, not their friend. They have been handed a licence to print money. They have a moral obligation to be advising their members.’’