New Zealand's national superannuation scheme KiwiSaver is aiming to play in the big league after choosing to move default super accounts to a 'balanced' option rather than the current 'conservative' approach.
KiwiSaver will also be banned from investing default members’ money in fossil fuel production and illegal weapons. Investment in companies that only sell, but don't produce fossil fuels like petrol, will be allowed.
The move will happen from July 2021. Conservative funds only put 10 per cent to 35 per cent in growth assets like shares and commercial property and in the New Zealand context are aimed at investors who would like to access their money within two to six years.
Balanced funds are recommended for investors with five to 12-year horizons and are 35 per cent to 63 per cent exposed to growth assets.
Finance Minister Grant Robertson he believed the move would see people get "more bang for their buck" in retirement savings.
Most default KiwiSaver members are younger, so have time to recoup losses that might result from being in a more aggressive allocation.
Only 8 per cent of the nearly 400,000 KiwiSaver members who were in default funds (without this being an active choice) as at March 2019, were over the age of 60, financial web site interest.co.nz reported.
“The key changes announced to the default fund settings are great news for Kiwis and the industry alike” said Richard Klipin, CEO of New Zealand's Financial Services Council.
“We have been calling for some time for default schemes to be moved from conservative funds to balanced funds so it’s fantastic to see the Government taking action on this," he said.
“The potential benefits for someone from being in a balanced fund rather than a conservative option over the duration of their working life are significant.
New Zealand Commerce and Consumer Affairs Minister Kris Faafoi said banning default providers from investing in fossil fuel production would support a transition to a lower carbon economy.
“It also makes sense for the funds themselves given that there is a risk of investing in stranded assets as the world moves to reduce emissions," he said.
“In 2017, the $47 billion NZ Superannuation Fund adopted a climate change investment strategy that resulted in it removing more than $3 billion worth of stocks that exceed thresholds for either emissions intensity or fossil fuel reserves, without negatively affecting performance.
“So we know that moving away from investments in fossil fuels doesn’t have to mean lower returns.”
A spokesperson for Mr Faafoi said more detail on the fossil fuel threshold and a definition of the exclusion would come later.
Research by charity, Mindful Money, found $1.6 billion of all KiwiSaver funds (worth about $60 billion) are invested in companies that are engaged in fossil fuel production.
As at March 2019, KisiSaver held $NZ9 billion in default investments. Around 690,000 KiwiSaver members in default funds – 290,000 of whom have actively chosen that option.
“There is a risk that the fossil fuel decision may lead to a greater politicisation of KiwiSaver and the potential for reduced investor confidence which would not be helpful for anyone," Mr Kiplin said.
Any Government limitations on KiwiSaver investments must meet the test of being in the best interests of savers, he said.
“That means being clear about how fossil fuel investment restrictions are defined and properly assessing the impact they will have on the financial performance of Kiwis’ retirement savings," Mt Kiplin said.