Changes to KiwiSaver default coming
Changes to KiwiSaver default funds were announced by the Minister of Finance and the Minister of Commerce and Consumer Affairs earlier this year.
The changes will be beneficial to members in the long run and will be more ethical and green, too.
And as KiwiSaver balances fluctuate due to the effect of the coronavirus outbreak on the sharemarket, members are told not to panic.
KiwiSaver providers who invest members’ funds will soon be required to put default providers funds in balanced funds, rather than conservative investment funds. The government will not put investments in fossil fuels and illegal weapons for future funds.
If you’re wondering what a default is: it is what Inland Revenue enrol you into if you don’t choose your own KiwiSaver fund and/or your employer doesn’t have a preferred scheme.
These funds are run by government-appointed providers who’ll automatically put you into their conservative option.
Currently, there are nine government-appointed providers: AMP, ANZ, ASB, Booster, BNZ, Fisher Funds, Kiwi Wealth, Mercer, and Westpac.
There are about 690,000 people in a default fund and approximately 400,000 of them haven’t made an active choice to be there. But nor have they bothered to opt out.
Finance Minister Grant Robertson said the Government wanted to ensure that people who remained in default funds receive the maximum benefit from their investments.
When KiwiSaver was launched, it was intended that default funds would only be a ‘parking space’ for people while they decided whether they wanted to invest.
Why the change?
The government pledged to address the impacts of climate change and further transition to a low-emissions economy. Excluding fossil fuels from future funds is a step towards that direction.
Green Party co-leader and Climate Change Minister James Shaw says people saving for their future want to know their savings are being put to good use, helping to create a better future for their kids and grandkids.
“Rules set down by previous governments allowed people’s hard-earned money to be used to support the fossil fuel companies that are the leading cause of the climate crisis,” he says.
“Moving money away from dirty energy is important if we are to create cleaner, greener and safer communities in every part of the country.”
Retirement commissioner Jane Wrightson says the new changes are significant.
“Increasing the risk level of your KiwiSaver fund from conservative to balanced or balanced to growth will have the biggest impact of any factor on your overall returns – more than fees and more than the Government contribution,” she says.
It basically means you get more bang for your invested buck.
For example, someone joining KiwiSaver at age 18 on a starting salary of $42,500 and contributing 3 per cent of their income into a balanced fund, will have around $56,000 more than if they were in a conservative fund by the time they’re 65, the current retirement age.
Most KiwiSaver members who make even more will have even bigger gains as they earn more and may contribute more over their working lives.
“We are very much in support of this change as a way to increase people’s retirement savings.”
Kris Faafoi, Minister of Commerce and Consumer Affairs, says it is important members have all the information they need to make good decisions about their fund.
“We want all New Zealanders to enjoy the benefits of KiwiSaver. No fund will be right for everyone, so we’re requiring default providers to do more to engage with their members and help them make the right decision for their circumstances,” he says.
“This will help with understanding which fund is best for KiwiSaver members and how much they should be contributing, so they are on track for the type of retirement they want.”
Coronavirus and KiwiSaver
As global share markets fall the financial impact of the Covid-19 has really hit home for many everyday Kiwi investors who are seeing a sudden dip in the value of their investments.
The overall message from the experts is to not panic, keep calm and hang in there. Like the Superfund, Kiwisaver is long term investment and experts expect it will rebound over time.