"New Zealanders have not become any more financially literate and a large percentage of funds remain in default [conservative] funds," the report notes.
Kensington said a behavioural shift was needed.
"Some of those basic concepts need to be taught in schools. Employers need to get some education in place as well, not just sign people up."
He said a campaign similar to the safety adverts around wearing car seat belts or using child carseats could help get the message across.
Neither schools nor employers are obliged to provide financial literacy education, although the Commission for Financial Capability has been running trials in both.
Kensington said education would need to be legislated to ensure it happened.
The nine KiwiSaver providers who run the default schemes were mandated to provide financial education to members in 2014, but it is unclear how much difference this has made.
Kensington said KiwiSaver providers need to adapt to the changing interactions of consumers.
"Customers want to interact digitally, which is driving the continuous need to make everything one click away " a trend that we are now seeing in the funds management industry, specifically KiwiSaver," he said.
"To ensure we keep financial planning and long-term savings top-of-mind, we need to tailor communication and methods of engagement to the customers' needs."
Research by KiwiSaver provider ASB found one in five Kiwis is now using their smartphone to engage with their KiwiSaver accounts.
Many providers now offer the ability for people to check their balance, make contributions or switch funds online.
But Kensington said it was harder to get the average Kiwi looking at whether they were in the right fund or were saving enough for retirement.
"That is where I think there has got to be a greater focus," he said.
Read the full KiwiSaver report here:
