Call for bolder default KiwiSaver

Photo / Mark Mitchell

People who join KiwiSaver but don't choose which fund they want to be in could be put into a more aggressive fund under a recommendation made by the Capital Markets Development Taskforce.

The taskforce yesterday released a 140-page report on its recommendations which included a raft of proposed changes for the managed fund industry, including the Government's KiwiSaver retirement scheme.

The proposals include making fund managers and those who supervise them directly responsible for putting the interests of investors first and ensuring all fees and returns are comparable and monitored by one body.

The taskforce also recommended KiwiSaver's default schemes be changed from conservative to either a balanced or "life steps" option to make them more appropriate for long-term investors.

People are randomly allocated to one of the six default schemes when they do not choose their own fund. Around 30 per cent of the 1.2 million KiwiSaver investors are in the schemes.

The default funds must invest conservatively with only between 15 and 25 per cent of the money going into growth assets like shares and property.

But the taskforce says those in the 18- to 24-year-old bracket are more likely to end up in the default schemes and the default should be changed to reflect the fact that they will be investing for another 40-plus years.

"A conservative asset allocation for default products was imposed to both minimise the risk of loss for members who have not actively chosen a fund, and to ensure that the default product was low in cost to investors. However, a conservative investment approach is not appropriate for all investors, for example younger investors with a long investment horizon."

Greg McAllister, acting head of ASB Investments which runs the biggest default scheme, said he was concerned about the number of young people in conservative funds but did not believe changing the default to balanced would solve the issue.

"Weighting the default option to a more balanced fund may be a more appropriate strategy but we would rather encourage people to take a more individual approach."

McAllister said the change would not encourage people to personally consider where their money should be, which was a big part of increasing financial literacy.

But Sam Stubbs, head of Tower's investment division and also a default scheme provider, welcomed the move.

"We have been calling for that for a long time."