Shelley Hanna: Good scheme to pick bank?

Q I have an engineering business. My bank manager has suggested that I sign a KiwiSaver "preferred provider" agreement with them. I think this means new employees will be enrolled automatically into their scheme, with existing employees who decide to join KiwiSaver. Is this a good idea, or should I let my employees make their own decisions?

A: Many fund managers running KiwiSaver schemes offer agreements to employers to be their "preferred provider". The advantages to the fund manager are quite clear - especially for those that are not a so-called "default" KiwiSaver provider - as it is a good way to get more members into their KiwiSaver scheme.

At the moment there are six default providers - they are allocated new KiwiSaver members who have not chosen a scheme. When a new KiwiSaver application reaches Inland Revenue, it is randomly allocated to one of the default providers (and into their conservative fund). The six default providers are AMP, ASB, AXA, Mercer, OnePath/ANZ and Tower. Being a default provider has helped these fund managers grow their KiwiSaver business - ASB and OnePath/ANZ are the largest KiwiSaver managers in the country with nearly half of all KiwiSaver assets between them.

Fund managers who are not a default provider have to work much harder to attract new members. Setting up "preferred provider" agreements with employers such as yourself is one way to do this. Should you sign such an agreement, new employees (not already in KiwiSaver) will automatically go into their scheme as well as existing employees who decide to join (where they do not make a scheme choice).

The fund manager may also get the opportunity to persuade your other employees to switch into their scheme as well.

Some employers prefer not to get involved in their employees' choice of KiwiSaver provider, but it may be an opportunity for you to provide a financial education service to your employees. Research has been done into the benefits of financial literacy and education in the workplace, particularly a seminal study from Virginia Technical University in 1998 (Joo and Garmin). It has been shown to be positive - reducing financial stress and increasing employee productivity.

I suggest you ask your bank manager what they are willing to offer in exchange for preferred provider status. Would an Authorised Financial Adviser be available to meet each employee to discuss their financial goals and complete a risk profile assessment? Would they run an employee workshop or seminar on investment markets, or on aspects of KiwiSaver such as First Home withdrawals or transfer of overseas pensions?

Some KiwiSaver providers are willing and able to do this for businesses and their employees, so do some more homework yourself before making your decision.

Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 870 3838. The information contained in this article is of a general nature and is not intended to provide specific or personalised advice. If readers have any KiwiSaver questions they would like answered, please visit www.peak.net.nz or email shelley.hanna@peak.net.nz