What Is a KiwiSaver Default Fund?
When you first join KiwiSaver, whether through your job or by signing up on your own, you’re given the option to choose a fund. If you don’t make a choice you’re automatically placed into what’s called a ‘default fund’. Default funds are government-appointed funds managed by selected providers which are designed to be a temporary place for your money to grow until you make an active decision about where you want it to go.
Default funds are often thought of as the middle ground. They are not too risky but not necessarily high-growth either. They aim to protect new investors from being in a fund that is either too conservative or too aggressive without knowing what that means.
Why Do Default Funds Exist?
KiwiSaver was designed to help people build retirement savings, and the government wanted to make sure that even people who didn’t know much about investing could still benefit from the scheme. That’s where default funds come in. They’re meant to be a safe place to start.
In 2021 the government made changes to the structure of default funds. One of the biggest updates was moving them from conservative funds (which carry lower risk and returns) to balanced funds. This change was made because many people remained in default funds for longer than intended and being too conservative could hold their savings back over time.
What’s in a Default Fund?
A default fund is a type of balanced fund, which means it contains a mix of investment types like shares (equities), bonds and cash. The idea is to give you a bit of growth while still managing the risk of losses during market downturns.
The makeup of the fund usually includes:
Around 60% in growth assets (like shares and property)
Around 40% in income assets (like bonds and cash)
This mix makes it suitable for people who are looking to grow their money but still want some protection from sharp drops in the market.
Is a Default Fund Right for You?
Default funds are better than they used to be but they’re still not personalised. They don’t take into account your age, your goals or your plans for the money. That’s why it’s important to think about whether a different fund might suit you better.
For example:
If you’re young and won’t need your KiwiSaver for decades you might benefit more from a growth fund. Growth funds offer higher long-term returns.
If you’re planning to use your KiwiSaver soon (for a first home purchase or retirement) you might want a conservative fund. These funds are more stable and less affected by short-term market changes.
Choosing the right fund type can make a significant difference to how much money you have in the future. Even just a few extra percentage points in returns over the years can add up to thousands of dollars more when you retire.
How Do I Know If I’m in a Default Fund?
If you’ve never chosen a KiwiSaver fund or provider there’s a strong chance you’re in a default fund. You can check this by logging into your KiwiSaver account through your provider or by checking your MyIR profile on the Inland Revenue website.
If you're unsure your employer or provider can help you find out which fund you’re in. They can also help you compare your options.
Can I Change Funds?
Yes, you can change your KiwiSaver fund at any time. It’s free and fairly simple to do. Most providers allow you to make the change online through their portal or you can contact them directly.
Before switching it’s a good idea to consider your risk tolerance, how long you plan to leave your money invested and what you want your KiwiSaver to do for you. Some providers offer online tools to help you figure out what type of fund might suit you best.
It Pays to Take an Active Role
Being placed in a default fund isn’t a bad thing. It’s a helpful safety net when you're starting out. Leaving your money there for too long without checking in could mean missing out on better returns or being in a fund that doesn’t match your life stage.
Taking just a few minutes to review your KiwiSaver settings, understand what fund you’re in and explore your options can set you up for a stronger financial future. KiwiSaver is one of the few tools in your life that truly works for you. Make sure it’s working as hard as it can!