Lift your game, KiwiSaver providers told

The default funds were designed as a holding place for people who are automatically enrolled into KiwiSaver and do not choose which fund to invest in.

KiwiSaver's watchdog has warned the nine government-appointed default schemes to lift their game after it found low numbers of savers had made a decision about where to invest their money after being parked in such schhemes.

Financial Markets Authority director of regulation Liam Mason told attendees at last week's NZ-OECD Symposium on financial education that eight out of the nine providers had seen less than 9 per cent of their default fund members make active choices on what to do with their investment.

The default funds were designed as a holding place for people who are automatically enrolled into KiwiSaver and do not choose which fund to invest in.

They are invested conservatively, mainly in cash and bonds, and are likely to be inappropriate for most people unless they have a short savings timeframe such as saving up for a first home or for those who are nearing retirement.

In 2014 the Government appointed nine default fund providers with a new requirement to provide financial literacy education to help people make an appropriate decision on what to do with their money.

Since then providers have been required to report to the FMA on a quarterly basis about what they are doing to encourage members to make a choice and the number of members who have made an active choice to either stay in the conservative fund or move to another fund.

It found Grosvenor, since renamed Booster, had the highest rate with 22 per cent making an active fund choice while banking giant ASB had just 1 per cent.

Providers do not have a target to meet and an active choice may mean deciding to stay in the conservative default fund.

Mason said it would be using the first year's result as a baseline.

"We have said to them we expect to see better than this next year," he said.

Mason said it would also be looking at the efforts providers were making to educate members.

Earlier this year KPMG's head of financial services John Kensington warned KiwiSaver providers could face a backlash from members who find they have less in their KiwiSaver accounts at retirement than they could have had and believe their provider should have done more to get them to switch.

Figures from the FMA report show 444,786 out of 2,608,383 KiwiSaver members were in a default fund with $4.2 billion invested in the default schemes as of March 31.

FMA chief executive Rob Everett said providers had told the regulator there were barriers to encouraging their default members to make an active choice.