Calls for the default KiwiSaver system to be abolished are misguided and the advantages of being a default scheme provider are overstated.
For most of the providers the funds received as a result of their default status is 50% or less of their total funds under management.
Members have also shown a willingness to move between providers, and that is expected to increase as members become more engaged with their KiwiSaver account and look to ensure they have the best scheme in place for their needs.
Recent research also shows that there is no significant relation between default provider status and the flow of funds or members; and any relation that does exist tends to be negative.
Editor’s Note: A paper recently co-authored by Dr Matthews (‘KiwiSaver Member Behaviour: A Quantitative Analysis) concluded, “It appears that being a default provider does not provide the expected benefits.”
I believe that a single state-run fund designed for those who cannot decide the best KiwiSaver scheme for investment will cause more problems than it will solve.
Last year’s ‘KiwiSaver and Retirement Savings’ Report showed a distrust of the government in relation to KiwiSaver in general, but also specifically in terms of its ability to manage members’ funds.
A state-run fund would also be very likely to carry an implicit or perceived government guarantee, which would make it more attractive and it could lead to an exodus from private providers and generate risk for the taxpayer.
Having several default providers is important because it spreads access to default members around, rather than concentrating it in one place.
The system requires the default providers to be reviewed, and this provides an opportunity for existing providers to lose their default status, and others to gain it. There have already been indications that both Westpac and Kiwibank will be seeking to gain default status in the 2014 review.
Dr Claire Matthews is Director of Financial Planning at Massey University’s Centre for Financial Services and Markets.
