Why the number of default KiwiSaver providers could shrink from nine to five

The number of KiwiSaver default providers could be reduced to five. Photo / Steven McNicholl

Default KiwiSaver providers looking to hang onto their members could be in for a fight after the Government indicated it is keen to only have five instead of the current nine.

More than 3 million people are signed up to KiwiSaver. Of those 381,034 KiwiSaver are default members with a total of $4 billion in funds under management.

KiwiSaver members are allocated to a default provider scheme when they are automatically enrolled through starting work or changing jobs and do not choose their own KiwiSaver provider.

Those current nine default providers are ASB, ANZ, AMP, Fisher Funds, Mercer, BNZ, Westpac, KiwiWealth and Booster.

But every seven years the Government holds a tender process to decide who will be appointed as default scheme provider.

The request for proposal was released on Friday by the Ministry for Business, Innovation and Employment and it gave the strongest hint yet that some providers could lose that coveted status.

"There is a preference to appoint a minimum of five default providers. More will be appointed if, but only if, doing so does not materially reduce overall value for money.

"If appointing less than five providers can significantly enhance value for money, this may also be done."

Details of the RFP also show some new providers likely won't even be able to qualify based on the minimum pre-condition requirements which include having funds under management of at least $100 million.

The Koura KiwiSaver scheme, which launched last year, only had $4.6m in its scheme as of March 31, according to its annual report.

Similarly the CareSaver scheme, managed by Pathfinder would also be ineligible with its annual report showing it had $18.3m as of March 31.

That is despite CareSaver having an ethical focus which is also a requirement for the default provider status.

This time around default provider schemes will have to offer a balanced fund, instead of the current conservative setting, and exclude investments in fossil fuel production and weapons.

Applicants will also be graded on two elements - their technical ability to meet the requirements and the fees charged.

Fees will have a higher weighting with 60 per cent awarded to that aspect.

James Hartley, general manager, commerce, consumers and communications at the Ministry of Business, Innovation and Employment, said the current nine default providers were appointed in 2014, and the tender process would help determine the next set of providers to be in place by December 2021.

"The aim of this RFP process is to ensure those funds work in the best interests of Kiwis who are in default funds, and to better reflect what people want from them."

Hartley said earlier this year the Government changed the default provider settings following consultation.

"The new settings are reflected in the RFP criteria that applicants will need to meet."

As well as switching from conservative to balance default providers will be required to do more to engage with their members and help them make the right decisions for their circumstances.

Hartley said it was incentivising default fund providers to charge reasonable fees by making fees a significant part of the overall evaluation during the tender process.

Providers have until December 18, 2020 to apply.

The new default providers will then come into force from December 1, 2021.

If a current default providers does not get reappointed then its members will be reallocated to the new default providers.