Although conservative funds have their place, ANZ Wealth's managing director John Body said long-term investors could be far better off with a "life stages" approach.
This places younger savers in funds with higher risk and returns and then moves them into more conservative options as they approach retirement.
Body called on the Government to move the default option for KiwiSavers towards a life stages plan to prevent a "$14 billion retirement savings time bomb".
"If we do nothing, it will cost New Zealand billions of dollars and seriously compromise the standard of living for a generation of retirees," he said.
Based on median returns, ANZ calculated a 25-year-old who enters KiwiSaver now would be $72,000 worse-off at 65 if they opted for a conservative fund over a life stages strategy.
This adds up to a $14 billion shortfall in the New Zealand savings pool over the next 30 to 40 years, it said.
Although ANZ - which also manages National Bank and OnePath - would likely make more from fees if the rules changed, Body said the bank's costs would also go up.
Revenue Minister Peter Dunne said the Government was "broadly supportive" of the bank's proposal.
"The thing about it which has merit is the recognition that for long-term savers who are in default schemes, the current conservative approach to investments might not be in their best interests - I think they raise a valid point," he said.
Other KiwiSaver providers also gave cautious support for the plan, but expressed some reservations.
Gareth Morgan, who sold his fund to Kiwibank this week but is still in its management team, said the life stages strategy was an "orthodox approach to how you should invest your savings".
Despite this, he said it was not for everyone and may not take into account other savings investors hold outside of the retirement scheme.
Westpac's head of investment solutions Matthew Goldsack said while the bank supports the proposal in principle, there were issues with the life stages model.
"On the face of it, it seems like a good idea but it is fraught with some hidden dangers," he said.
"Switching from one risk profile to another risk profile solely based on your age may not be the most appropriate thing to do ... there is more to your risk profile than simply your age," he said.
For instance, Goldsack said the strategy would not necessarily suit young people planning to use KiwiSaver funds to buy their first home.
Tower investments chief executive Sam Stubbs understood where ANZ was coming from but said the "devil was always in the detail".
Signing up
If you sign up to KiwiSaver at work now, you are automatically enrolled into a conservative fund with one of the big six default providers.
What ANZ wants
- A "life stages" plan to be the default option for KiwiSavers.
- This allocates savings into different funds - which offer various levels of return and risk - depending on how close you are to retiring.
