Kiwbank says default provider arrangements do not encourage financial literacy and has called for them to be dropped.

The contracts for the providers running the default KiwiSaver schemes are due to run out next year and the Government has asked for feedback on whether any changes are needed.

Kiwibank made a submission saying the default system allowed people not to engage with their savings.

“This means that a high percentage of default members will have little or no understanding of retirement investing and engagement in their financial future. The current arrangements should be replaced with a structure which promotes engagement and builds financial literacy.”

Nigel Tate said about 40% of people were not getting any advice at all on their KiwiSaver accounts.

And he said it was the view of the IFA that as long as a member of the public sought out good financial advice, the provider they chose was almost irrelevant.

When someone first started saving, most of their return came from the Government and employer subsidies, he said. 

“It doesn’t negate the need for picking the right fund but there’s no harm in being in a default fund in the short term.”

Tate said the number of default schemes was a bit high but that could change through the merger of AMP and AXA.

But he said he did not support Kiwibank's suggestion. "I think it would be a retrograde step."

More funding to promote financial literacy would be preferable.