Thousands of New Zealanders who work are enrolled into a default KiwiSaver scheme. Default KiwiSaver schemes are “low-risk” and are designed to give you an introduction to investing in KiwiSaver, if you haven’t yet decided what KiwiSaver scheme is right for you. Canstar explains what a default KiwiSaver scheme is and why it’s important to take active steps to choose a scheme that best suits your needs.
What is KiwiSaver?
KiwiSaver is a voluntary employment-based retirement savings scheme. It was passed into law in August 2016 and first became active in July 2017. Employees can choose to contribute 3%, 4%, 6%, 8% or 10% of their before-tax salary toward their KiwiSaver scheme. If an employee is enrolled in KiwiSaver, then the employer must contribute a minimum of an additional 3% of the employee’s salary to KiwiSaver.
If you’re 18 years of age or older, the Government will also make an annual contribution towards your fund. The Government pays 50 cents for every dollar of your own annual contributions to your KiwiSaver – up to a maximum payment of $521.43 each year. This means, if you contribute at least $1,042.86 a year, you will be eligible for the maximum credit. Provided you meet the criteria, KiwiSaver savings can also be used towards a first home deposit.
What is a KiwiSaver scheme?
A KiwiSaver scheme is managed by scheme providers and is essentially where your savings are invested. You can choose from a range of funds that are offered by a number of scheme providers but it’s important to take into consideration a number of factors, including:
- Risk levels;
- Management fees; and
- Special features such as ethical and social investment options.
The Financial Markets Authority (FMA) registers and regulates KiwiSaver scheme providers, to ensure providers are working in members’ best interests and are providing sufficient information around fees and how the investment is tracking.
As mentioned above, you can choose what scheme you’re enrolled into. In cases where you haven’t made an active decision as to which KiwiSaver scheme to be enrolled into, you’ll be provisionally allocated to your employer’s chosen scheme. However, if you haven’t chosen your own KiwiSaver scheme and your employer doesn’t have a preferred scheme, then you’ll be allocated to a default scheme by Inland Revenue (IRD).
What is a default KiwiSaver scheme?
A default KiwiSaver scheme is one that you are enrolled into by IRD, if you haven’t chosen a particular scheme or your employer doesn’t have a preferred scheme.
There are a number of default scheme providers that have been selected by the Government based on certain factors, including: investment experience, fees, member education and organisation capabilities. New KiwiSaver members are usually evenly allocated between default scheme providers.
At the time of writing, the default KiwiSaver scheme providers in New Zealand are:
- BT Funds
- Fisher Funds
- Kiwi Wealth
Default schemes typically have a conservative investment approach to provide members with stable returns with little risk. Whilst this suits some people, it may not necessarily suit others, especially those who are interested in yielding a bigger return on investment.
Should you remain enrolled in a default scheme?
Being a KiwiSaver member and making regular contributions are for your own long-term benefit so, it’s important that you choose a scheme with a fund type that suits your individual circumstances and long-term needs.
Sorted’s KiwiSaver Fund Finder allows you to compare the different types of KiwiSaver funds available, according to important factors like level of risk, fees, services and returns.
It is important to take a balanced view across a range of factors when considering which KiwiSaver fund best meets your individual circumstances, particularly, the services available from each provider and estimated investment returns.
If you are allocated to a default provider’s KiwiSaver scheme, your KiwiSaver contributions will be invested in the scheme’s conservative investment fund option. If you stay in a default fund, you could be missing out on the potential for higher returns in a fund that is invested in more growth assets, such as property.
Shop around and research fund types
Depending on your financial needs and long-term saving plans, it’s important that you consider what different KiwiSaver scheme providers offer, what they invest in and whether the scheme suits your own personal financial goals, whether that be retirement, or saving for a first home.
As different scheme providers have a variety of fund types to choose from, it pays to do your research on what is available on the market. Canstar offers free KiwiSaver comparison tools, so you can compare providers’ fees, performance and features. Every year, Canstar also rates KiwiSaver providers, to find out which providers are offering Outstanding Value. See how providers stacked up, here.