The Government is reviewing its default provider process.

BInu Paul, of price comparison site PocketWise, said people stuck in default conservative funds had missed out on $3.5 billion in accumulated savings over the past 10 years, compared to what they would have achieved in a balanced fund.

“The current system of having a small group of providers selected from the universe of all providers creates numerous distortions, none of which favor the KiwiSaver member. One, it has created a concentration of funds with the small group. Two, it has created a cohort of at least 430,000 lazy investors who have taken the easy route of not having to make a choice.

“Notwithstanding the fact that the IRD randomly allocates each member to one of the nine providers. With the current review of the default KiwiSaver funds it is timely to reconsider why have a default KiwiSaver mechanism at all.”

He said, if there was a bulk transfer of members between old and new default providers, if they were to change, it would be fraught with danger.

“It has the potential to create significant costs within the sector which could likely pass on to members. But, also think of the fairness of this to existing default providers who have invested over the years in signing up members, and the ‘free lunch’ that passes on to any new default providers.

"Perhaps a more effective solution would be to require all providers to satisfy all requirements and if they are fit for purpose allow them to operate a KiwiSaver scheme. The same strict criteria should be applied across the board, not just a subset of providers. The licence to operate should also come with an obligation to have at least one fund in their scheme as a ‘default’ fund as well as the requirement to transition default members into more appropriate funds in their scheme within a timeframe. Educating and engaging with the members should be a pre-requisite for all providers."