Default KiwiSaver changes support more responsible investment

New Zealanders’ savings in KiwiSaver default funds will soon exclude investment in fossil fuels, the Ministers of Finance and Commerce and Consumer Affairs announced today.

Rule changes mean that investments in fossil fuel production will be excluded from future funds that are default providers.

Default providers are funds that are allocated to people who do not actively choose a fund when they join KiwiSaver.

“This reflects the Government’s commitment to addressing the impacts of climate change and transitioning to a low-emissions economy,” Commerce and Consumer Affairs Minister Kris Faafoi said.

“It also makes sense for the funds themselves given that there is a risk of investing in stranded assets as the world moves to reduce emissions.

“In 2017, the $47 billion NZ Superannuation Fund adopted a climate change investment strategy that resulted in it removing more than $3 billion worth of stocks that exceed thresholds for either emissions intensity or fossil fuel reserves, without negatively affecting performance. So we know that moving away from investments in fossil fuels doesn’t have to mean lower returns.”

Climate Change Minister James Shaw said rules set down by previous governments have allowed New Zealanders’ hard-earned money to be used to support the fossil fuels companies that are the leading cause of the climate crisis.

“No New Zealander should have to worry about whether their retirement savings are causing the climate crisis. That’s why our Government is moving default KiwiSaver funds away from fossil fuels, putting people and the planet first,” James Shaw said.

Finance Minister Grant Robertson said the Government wanted to ensure people who remained in default funds got the maximum benefit from their investments.

The terms of the existing nine default providers expire in June 2021.

“As we go about appointing new providers, the Government is also improving the settings for investors,” Grant Robertson said.

“We’re changing default fund settings from ‘conservative’ to a ‘balanced’ fund. The change is intended to make a real difference to people’s financial wellbeing in retirement,” Mr Robertson said.

“We’re also focusing on ensuring New Zealanders get greater value for money from their fees, which we know can make a big difference in the amount of money people have for their retirement. So the fees each provider charges will be factored into the providers we select during the procurement process,” Mr Robertson said.

Kris Faafoi said another key area of focus would be to ensure members have all the information they need to make good decisions about their fund.

“We want all New Zealanders to enjoy the benefits of KiwiSaver. No fund will be right for everyone so we’re requiring default providers to do more to engage with their members and help them make the right decision for their circumstances. This will help with things like understanding what fund is best for KiwiSaver members and how much they should be contributing so they are on track for the type of retirement they want”, Mr Faafoi said.

About 690,000 New Zealanders have stayed in default KiwiSaver funds, which they were automatically enrolled in when they started a new job. Approximately 400,000 of those have not made an active choice to stay there.

Notes:

Improvements the Government is making include:

  • changing the investment mandate from ‘conservative’ to a ‘balanced’ fund
  • ensuring KiwiSaver fees are simple and transparent, and using the procurement process to put pressure on fees
  • obligations on default providers to engage with their members to help them make informed decisions about their retirement savings
  • excluding investments in fossil fuels and illegal weapons. While default fund providers have in recent years divested any investments in companies involved in illegal weapons like cluster munitions and anti-personnel landmines, the changes now enshrine that requirement in default fund settings
  • requiring default providers to maintain a responsible investment policy that’s published on their website
  • transferring non-active default members[1] of any provider that is not reappointed to one of the appointed default providers[2] (so that these members retain the benefits of being in a default fund).

KiwiSaver default fund providers

When people enrol in KiwiSaver but don’t actively choose an investment fund, the Government allocates them a default fund. Around 690,000 people remain in a default fund, and approximately 400,000 of those have not made an active choice to stay there.The terms and conditions that apply to a default provider’s appointment are contained in an instrument of appointment, which is agreed to prior to the term of appointment. There are currently nine default fund providers, and their terms expire in mid-2021.

Every seven years, the Government reviews the settings for default providers ahead of appointing a new selection of default providers through a competitive tender process. The new settings will apply to the default funds that are in place from mid-2021. The procurement process to appoint the new default KiwiSaver providers commences later this year.

 

[1] An active member is regarded as someone who has made a meaningful, informed choice in their own interest about their KiwiSaver. This includes members who have made an active decision to remain in the default fund. FMA, KiwiSaver Annual Report 2019.

[2] Transfer will be made on a sequential basis in accordance with the KiwiSaver Act 2006.