KiwiSaver has continued its rapid growth, doubling in funds under management from $5.6 billion in March 2010 to $11.3 billion in December 2011, according to the latest Reserve Bank statistics for the fund management industry.

The scheme is the only part of the $67.5 billion industry in New Zealand that is growing, and it is rapidly catching up in size to other superannuation funds, which were down slightly to $18.5 billion in the December quarter.

However, the figures also confirm concerns by both fund managers and financial advisers about KiwiSaver asset allocation being too conservative for many investors.

Just under 60% ($6.7 billion) of the $11.3 billion in KiwiSaver is invested in fixed interest products, $4.7 billion of which is invested in New Zealand including $1.1 billion (nearly 10% of total FUM) in deposits.

By comparison, other superannuation funds have a lower allocation to fixed interest (46.3%), with $4 billion of the $8.6 billion invested in New Zealand fixed interest products and under $600 million (3%) in deposits.

NZ Funds Management chief executive Richard James said the high exposure to fixed interest products reflected the "relatively passive nature" of the decisions that have been made around by KiwiSaver members about where to invest, with large numbers in default schemes.

"It's a massive massive challenge for the government and for advisers because there's around a million people who are yet to make a real decision about their capital - it's a very big issue.

"A large proportion of our country's superannuation is earning cash less frictional costs, which is not a good outcome for anybody except maybe those getting paid the frictional costs.  It's not good for the investors and it's certainly not good for New Zealand."

James also warned that fixed interest isn't a "risk-less" investment, particularly if inflation goes up.

"They might get lucky to an extent, and the default choice over the last few years has been the best performer but that's unlikely to continue."

He said the over-exposure to fixed interest is even more acute when the young age of many KiwiSaver members is taken into account.

"If you use the adage of 100 minus your age to work out how much exposure you have to growth assets, it would seem we have a hell of a lot of very old people, but in reality the opposite is true.

"These young people have the potential to take some significant, well-managed risks to maximise their retirement outcome."