KiwiSaver providers who want to be part of the default scheme will need to offer a low-fee balanced fund that does not invest in weapons or fossil fuels, and demonstrate they can engage with their clients through to their retirement.

“The current nine default providers were appointed in 2014, and the tender process will help determine the next set of providers to be in place by December 2021,” said James Hartley, a general manager at MBIE.

“The aim of this RFP process is to ensure those funds work in the best interests of Kiwis who are in default funds, and to better reflect what people want from them.”

Successful bidders will benefit from a steady stream of new default members being automatically added to their funds, as well as the possibility of having existing members reallocated from incumbent default funds that make an unsuccessful bid.

Scale

As of March 31, there were 380,000 default KiwiSaver members in the nine default funds, with more than $4 billion of funds under management.

MBIE said the ministers in charge of the selection would prefer to appoint at least five providers. However, they may appoint more or fewer to get better value for money.

With nine incumbent schemes competing for potentially only five spaces, it is likely that the winners will get a significant boost from existing default members.

MBIE has a particular focus on lower fees and for providers to up their game on client engagement.

“The fees for these services must fairly reflect the nature of the service provided and the relatively low member fund balances.”

The document suggests this would be limited to a percentage-based and annual fee, without any additional charges. It does allow for “innovative fees structures” if they benefit members and are simple and transparent.

More than half of all default members have a balance of less than $5,000.

The tender deadline is Dec. 18. New providers will be named in April with the new default funds operating from December 2021.