December has been a busy month for KiwiSaver, with a few changes occurring at the beginning of the month. These changes include Major KiwiSaver provider Simplicity dropping membership fees for all products, the new Default funds and providers, and the government considering potentially changing government contributions.
Simplicity drops all membership fees.
The nonprofit KiwiSaver provider Simplicity has changed it so that all of its members will no longer be required to pay membership fees on any Simplicity funds when previously, adult members paid a $20 a year membership fee. Over the past five years, the nonprofit has reduced its membership fee three times already, excluding the recent changes. Compared to Morningstars latest KiwiSaver survey that shows a median annual membership fee of $23 for growth and balanced funds and $9 for conservative funds.
Simplicity managing director Sam Stubbs is vocal in his criticism of the KiwiSaver industry fees, which he says remain far too high. This doesn’t come as a surprise with Simplicity’s management fee remaining in place at 0.31% per annum for all of its growth, balanced and conservative KiwiSaver and investment funds. In contrast to Morningstars survey results, which have a mean management fee charge of 1.18% for KiwiSaver growth funds, 1.03% for balanced funds, and 0.68% for conservative funds.
Sam Stubbs states KiwiSaver fees in 2020 were $650 million, a significant figure due to there being no need for additional bank branches or any capital requirements.
National Capital Director, Clive Fernandes, commented that ‘fees are important but aren’t the totality, because our whole philosophy is it is not just about fees, it’s about making sure people are getting the right advice and making the right decision. And that’s going to make the biggest difference, not just a small reduction in fees’.
He says 2021 has been a banner year for Simplicity, with fast growth, becoming a default KiwiSaver provider and winning some key customer satisfaction awards. If you want to check if Simplicity aligns with your financial goals, complete a KiwiSaver Healthcheck.
Default funds
Earlier this year, the government ensured KiwiSaver users were getting better returns from KiwiSaver default funds and automatically upgrading default funds to risker profiles.
On the 1st of December, all KiwiSaver default members were placed into balanced funds that deliver medium returns in exchange for medium risk. This is because of the balance between gross assets and income assets.
The default KiwiSaver providers lineup has also been changed. Every seven years, the Government reviews those providers’ lineup based on several criteria, including investment performance, services and fees. This time, the government has changed it to 6 default providers.
The new default providers changed on December 1 will be BNZ, Booster, BT Funds Management(Westpac), Kiwi Wealth, Simplicity and Smartshares. Because of this that AMP, ANZ, ASB, Fisher Funds and Mercer no longer have default fund licences.
Although default funds have now become a better option to some with the balanced fund as a default, it is encouraged that people check their KiwiSaver provider and check their funds to make sure they’re on track. If you’re not happy, you can move and find a fund that makes you comfortable with help from the KiwiSaver Healthcheck.
Potential Government Changes to KiwiSaver
Consumer Affairs Minister David Clark has signalled the Government is looking into more changes to KiwiSaver.
“KiwiSaver has gone from strength to strength over the last 15 years, but there are still things we can tweak, including the contribution settings to get more members enrolled” and “If we get these things right, we can increase financial resilience, improve equity in the system and improve the depth of our capital markets.”
In the Financial Markets Authority’s annual KiwiSaver report, there is $81.6 billion invested in KiwiSaver funds, with over 3.09 million people members of the scheme as of March 31.
In 2019 the Retirement Commissioner suggested some recommendations to change KiwiSaver, including introducing a small-steps approach that automatically increases member contributions by 0.5 percentage points a year until it reaches 10 per cent or the member opts out of the approach.
The commissioner has recommended increasing government contributions by putting in $2 for every $1 contributed, up to $2000 per annum. This move could replace the current incentive of the government putting in 50c for every dollar a member contributes up to a maximum government contribution of $521 per year. However, To keep costs down, it was recommended this incentive be limited to the first 12 years of KiwiSaver membership.
In addition, to the recommendation that beneficiaries be auto-enrolled in KiwiSaver through a 3 per cent government contribution made on their behalf on top of their current benefit.
In June, the Ministry of Business innovation said officials were looking to prepare advice to ministers on the recommendations from the Retirement Commissioner’s Report from 2019 by stating that:
“A government response is due this year.”
If any of the recommendations are implemented, it would be an excellent opportunity for KiwiSaver members. If you are not in KiwiSaver, the changes are a great reason to join. Even without the potential modifications, KiwiSaver is a great way to start saving for your future. Consider completing a KiwiSaver Healthcheck to find the correct fund for your future goals.