Another KiwiSaver scheme closes and more are expected to follow suit

A second KiwiSaver provider has closed its scheme just weeks after a union-backed scheme also said it would be wound up.

The eosaver scheme, set up in July 2007 by Australian fund manager eo Financial Services, was closed to new members on May 31 and will be wound down over the next few months.

The scheme has 3000 members with $5.5 million invested and follows closure of the Industry Retirement and Insurance Services (IRIS) KiwiSaver scheme on May 21. IRIS KiwiSaver had around 1000 members and $3 million invested.

A spokesperson for Eo Financial Services said the decision to close the fund was primarily down to a saturation of the KiwiSaver market.

Before the two closures there were 54 schemes on offer and 31 providers, but 75 per cent of the $2.725 billion is invested with just six providers.

The changes introduced on April 1 - reducing the minimum contribution level from 4 per cent to 2 per cent and keeping the compulsory employer contribution at 2 per cent - had also made the market less attractive, the spokesperson said.

From May 31 new contributions by members would be held by the Inland Revenue while the scheme's existing investments would be transferred to cash.

Existing scheme members will have up to three months to chose a new provider or they will be placed in one of six default schemes by the Inland Revenue.

Investment Savings and Insurance Association chief executive Vance Arkinstall said it had always been inevitable there would be some providers that had to exit the market because they could not gain enough market share. He expected the number of providers to drop to 10 to 15 and the schemes to fall to between 20 and 25.

Arkinstall said there might be members worried about the closures but he said there were plenty of providers willing to take them. "And certainly there is no threat of losing any money."