Kiwisaver edge comes under fire

BEING a default Kiwisaver provider is not all it is cracked up to be, a financial planning researcher says.

Claire Matthews, director of financial planning at Massey University’s Centre for Financial Services and Markets, was responding to a call by a fellow retirement policy expert to scrap the six default Kiwisaver providers because it gave those companies an unfair advantage.

ASB Bank, AMP, AXA, Tower, Mercer and Onepath (ANZ) each get a share of any new members that join without choosing a fund, which to date has helped them win more members each than all but one of the non-default funds.

But Matthews says the advantages of being a default provider are being overstated.

‘‘There is an initial advantage in that it gives them an opportunity to persuade those people to stay, but research has shown that it is not necessarily happening,’’ she said.

Michael Littlewood, director of the Retirement Policy and Research Centre at Auckland University, told the New Zealand Herald that he questioned the need to renew the agreements with the default providers when the system was reviewed by the Economic Development Ministry. That must happen before June 2014, when the agreements run out.

Most employees would be in Kiwisaver by then anyway, he said, and the current system gave some providers an unfair commercial advantage over the smaller players.

Retirement Commissioner Diana Crossan said the Government could not scrap the default funds because savers who did not choose a fund still needed a provider to manage their money.

However, Crossan has called for default providers to be more active about contacting their members to shift them out of default funds and into something more suitable for their needs.

Some providers were better at doing this than others, she said.

Crossan will be asking the ministry to make active contact with members part of the deal when it renews the default agreements.

Westpac and Kiwibank have indicated they would like to join the six existing defaults when the system comes up for review.

The Government is also looking at netting about 250,000 new members into the scheme by staging a one-off enrolment of all workers, instead of enrolling only those workers who start a new job, as happens at present.

The plan to boost membership will only go ahead in 2014-15 if the Government’s books have returned to surplus.

Workers will have the option to leave the scheme again.