Most of the incoming default KiwiSaver providers have opted for a stripped-down asset allocation and a passive-bent to keep the new balanced default funds in a tight fee range.
However, updated documents show a wide variance between default fund fees and regular balanced options across the providers with Kiwi Wealth and Booster, in particular, showcasing the cost of active management across their respective strategies.
As detailed in the table below, all of the six providers appointed in May have priced their regular balanced options above the default fund ranging from the $20 annual fixed impost from Simplicity to a 0.9 per cent differential in the Booster scheme.
Both Booster and Kiwi Wealth have set their default funds as largely passive vehicles – the former mainly outsourced to Vanguard while Kiwi Wealth is likely to index in-house – compared to a full active management approach in the balanced strategies.
With the exception of Simplicity (where the default and balanced funds are almost exact replicas), the other schemes – BNZ, SuperLife and Westpac – have tweaked the two respective products rather than radically reengineered the options.
| Provider | Default fund fee
% |
Balanced fund fee % |
| BNZ | 0.35 | 0.45 |
| Booster | 0.35 | 1.24 |
| Kiwi Wealth | 0.37 | 1.03 |
| Simplicity | 0.31 | 0.31 (plus $20 annual member fee) |
| SuperLife | 0.2 | 0.6 |
| Westpac | 0.4 | 0.5 |
Overall, BNZ, SuperLife and Westpac default funds have a lower risk exposure than their respective balanced versions – an asset allocation determined in part by regulation – but maintain the same underlying funds for both.
BNZ has steadily simplified underlying managers over the last couple of years while SuperLife invests via its own range of passive funds (largely flowing into Smartshares exchange-traded funds).
Westpac appointed Northern Trust to a factor-based mandate last year but retained a panel of active managers – including MFS, Ardevora and T Rowe Price – to run its KiwiSaver (and other) money.
However, Westpac has dumped its sole remaining alternative manager – K2 Advisors – from the list, according to the latest fund update, suggesting some cost-trimming at the margins.
Paul Gregory, Financial Markets Authority (FMA) director investments, said the new default fund balanced fees should flow through to lower overall KiwiSaver costs for members.
Following the release of the FMA annual KiwiSaver report last week, Gregory noted some providers had reduced fees although further ‘benefits of scale’ were expected over time.
Last week, for instance, the largest KiwiSaver provider, ANZ, dropped the $18 annual member charge across all three of its schemes while reducing management fees for the conservative and conservative balanced funds by 0.22 and 0.15 per cent, respectively.
ANZ along with ASB, AMP, Fisher Funds and Mercer will have to hand over their residual default members to the newly appointed providers from December 1 this year.
The FMA report also reveals the five sacked schemes “are expected to stop all proactive efforts to engage default members from 30 September 2021, excluding those in that month’s final allocation of default members”.
According to the FMA calculations, as at June 30 this year about 263,000 default members would be liable for redistribution across the six incoming providers once the new regime ticks over in December. Earlier Ministry of Business, Innovation and Employment figures suggested about 300,000 default members would have to shift.
Total default fund members fell from about 380,000 last year to just over 356,000 at the end of March while assets under management for the group dropped a little year-on-year to end at $3.96 billion, according to the FMA KiwiSaver report.
During the 12 months to March 31, Kiwi Wealth, Fisher Funds and AMP proved most successful at improving default member conversion to active participation with respective annual increases in the metric of 144, 46 and 39 per cent: BNZ, Westpac, ANZ and ASB slipped -57, -29, -23 and -18 per cent by the same measure.
The incoming default providers officially take over from December 1 but the asset transition – both from fired schemes and to the new balanced funds – is expected to take a couple of months while incurring uncertain costs.
“The FMA will monitor the transition and providers’ progress against the engagement standards and all service standards under the Instrument of Appointment. Default providers will need to report to us every six months,” the FMA report says.
“It’s hoped positive outcomes from this year’s changes, including default members earning better returns, will begin to show in the next 12 months.”