Kiwis get ‘more bang for their buck’ with move to balanced default funds

Default KiwiSaver funds will be moved from conservative to balanced funds in a shake-up of the New Zealand superannuation system.

This followed the decision by the New Zealand Government for KiwiSaver funds to exclude fossil fuels.

The rules will apply from July, 2021 and were described by New Zealand’s finance minister Grant Robertson as giving people ‘more bang for their buck’.

Conservative funds were typically 10%-35% invested in growth assets whereas balanced funds were 35%-63% growth assets, making them more suitable for those with a longer-term time horizon.

Most of those people in a default fund were under-60 so they would have more time to recoup potential losses from being in a balanced fund over their working life.

Richard Klipin, chief executive of Financial Services Council of New Zealand, said: “The potential benefits for someone from being in a balanced fund rather than a conservative option over the duration of their working life are significant. 

“This simple decision could be lifechanging for many of us and ensure that more Kiwis are able to enjoy a greater degree of financial security in their retirement.”

However, Klipin urged the NZ Government to work on how to manage the process if an existing KiwiSaver default provider was not reappointed and they lost their default clients.

“This would likely involve transferring tens of thousands of KiwiSaver accounts at once and if not carefully managed could be a cumbersome process. It is vital that officials have modelled it carefully and planned accordingly,” he said.

“Trust and confidence in KiwiSaver are essential. We therefore welcome the changes in this announcement that help build stability and confidence in the scheme.  We urge though the Government to tread carefully on those that risk further politicisation of KiwiSaver and dragging it into the political arena.”