Kiwisavers switching out of default funds
KiwiSavers are switching out of low-return default funds as their balances grow and savers become more investment savvy.
New KiwiSaver members who do not pick a fund are placed randomly with one of nine default providers, which have low fees and must invest less than 25 per cent of their fund in growth assets such as shares.
Research house Fundsource's latest KiwiSaver survey found just $66.9 million flowed into these funds in the June quarter, down 53 per cent from $141.7m in the previous quarter.
This was much smaller than other fund categories, with inflows of $116.5m in the (non-default) conservative category, $313.4m in balanced, and $287.0m in growth during the quarter.
"This suggests the majority of eligible members have already been placed in default funds and are starting to make active decisions to opt into other funds," Fundsource said of its findings.
In the past five years, default funds have had the lowest return of all KiwiSaver investment categories, Fundsource said.
"The annualised performance of default funds since June 2009 was 6.48 per cent, compared to 6.66 per cent, 9.23 per cent and 10.78 per cent in the (non-default) conservative, balanced and growth categories respectively."
Peter Neilson, chief executive of industry group the Financial Services Council, welcomed the figures suggesting people were switching out of default funds.
"It's a positive trend," Neilson said.
"It's important people actually engage and pay attention to what's happening in their KiwiSaver and are more discerning."
Several factors were likely to be contributing to more default members choosing to move to other funds, Neilson said.
"The first thing is they've got their new contract for default providers and there's a requirement they effectively educate their members about the appropriate place for them to be," he said.
"We've also had more publicity about these issues as well."
Another factor, he said, was the growing size of KiwiSaver members' account balances.
According to Fundsource, the average member account balance was $9374.19 in the June quarter, up 10.5 per cent compared to $8484.99 the previous quarter.
"If you've got $2000 in your account you don't care too much. In Australia they talk about when you can buy a new car being the point you start paying more attention," Neilson said.
NZX head of exchange products Sam Stanley said it was too early to tell if the drop-off in flows into default funds was a trend, but it could be the start of a trend.
"People are becoming a bit more familiar with the scheme and equity markets are going up globally, which is making people take notice of their fund's asset allocation," Stanley said.
The fund flow numbers "tend to jump around a bit", with the biggest inflows generally in the September quarter due to the payment of member tax credits during this time, he said.
Default funds account for 24.75 per cent of KiwiSaver funds under management, according to Fundsource.
Non-default conservative funds hold 14.63 per cent, balanced funds hold 28.84 per cent, growth funds hold 25.97 per cent and single-sector funds hold 5.80 per cent.