Default KiwiSaver funds: useful start, terrible long-term home

About 700,000 NZ KiwiSaver members are in default funds. Most don't realise it. They were auto-enrolled and never picked anything else. so the government parked them in a "safe" balanced-conservative fund.

It's not bad. It's just wrong for most of them.

Why defaults exist

Default funds are designed not to lose much. The government's logic: better to have someone who never engages with KiwiSaver in a fund that doesn't tank in a downturn. Fair enough.

But the same conservative-leaning mix that protects you against drawdowns also caps your long-term growth. For someone in their 20s with 40 years until retirement, "not losing much" is the wrong objective.

The cost of staying

A 25-year-old in a default fund vs the same person in a Growth fund: roughly $200,000 difference at retirement, on otherwise identical contributions. That's life-changing money traded for short-term smoothness you didn't actually need.

How to tell if you're in one

Check your provider's portal. The fund name will usually have "Default" in it, or be called something neutral like "Balanced". If you don't remember actively picking it, you're probably in a default.

What to do

• If you're under 50 and saving for retirement. switch to Growth or Aggressive.
• If you're saving for a first home in 3+ years. switch to Conservative or Balanced.
• If you're 60+ and drawing down soon. Conservative is roughly right; defaults are fine.

Run the Health Check or compare the default funds against alternatives.

Source: Financial Markets Authority, KiwiSaver Annual Report and default-provider settings (fma.govt.nz). General information only. not personal financial advice.