Choose a preferred KiwSaver Scheme

Choose a preferred KiwiSaver scheme

As an employer, you have an opportunity under the KiwiSaver legislation to select a preferred KiwiSaver scheme for your workplace.

This means that new staff that are automatically enrolled, or existing staff that choose to opt-in to KiwiSaver, will become members of your company's preferred scheme (rather than being randomly assigned to a default scheme) if they don't make a choice themselves.

Why choose a preferred KiwiSaver scheme?

There are advantages that come from choosing a preferred scheme. Here are some of the things that have been highlighted by providers and commentators:

  • Because default investment funds are conservative, they may be inappropriate for many investors saving for the medium to long term. Having a preferred scheme may help ensure that more of your staff are in KiwiSaver investment funds that suit their circumstances.
  • The induction process for new employees is simplified (to the extent that they choose to go with the preferred scheme).
  • Having a preferred scheme helps simplify the decision making process. Currently there is a wide range of KiwiSaver schemes from which to choose. We know that the wider the choice, the harder it is to make a decision.
  • Your staff can benefit from the education and support that typically comes from the provider of a preferred scheme.
  • Because you and your employees deal predominantly with only one scheme provider, administration is made easier and there is less distraction amongst employees arising from differing investment results and membership experiences.  Be aware, however, that new employees are likely to bring KiwiSaver schemes with them to your workplace and all employees retain the right to change schemes.

Some things to think about...

It is important to bear in mind that employees that opt into or are automatically enrolled in KiwiSaver are not obligated to join their employer's chosen or ‘preferred' scheme. Having a preferred scheme simply means employees that do not make a choice themselves are assigned to the preferred scheme rather than randomly assigned to a default fund.

A number of employers who have nominated a preferred scheme have done so on the basis of the strength of an existing financial services relationship.

Some employers have not chosen a preferred scheme because they are concerned that this may make them liable under regulations governing the provision of ‘financial advice'.  In legal terms, this is not a worry as KiwiSaver legislation specifically excludes the selection of a preferred scheme from the definition of ‘financial advice'.

In practical terms, however, employers may find themselves in a position of having to defend their choice of a preferred scheme, e.g. at times when investment returns are less than expected by employees. This is another reason why some employers have decided to forego choosing a preferred scheme, leaving the responsibility for choosing a scheme entirely in the hands of their employees.

Where to from here?

The process of choosing a preferred scheme can be as simple or complicated as you want it to be. In comparing schemes, there are a few things you'll need to evaluate:

  • The ‘credibility' of the scheme provider
  • The range of investment funds available for employees to choose from
  • Fees and expenses
  • The level of education and service provided to employee members
  • The level of support for the employer
  • Quality of the investment management arrangements
  • Administrative capabilities
  • Scheme flexibility

Employers may choose to either review and select a preferred scheme themselves or appoint an independent consultant to assist them in this process.

As a starting point, the IRD maintains a current list of providers with KiwiSaver schemes open to the public. In addition, there are some KiwiSaver schemes whose membership is limited to particular industries, unions or associations. An example is the IRIS-GMK scheme open to union members and their immediate families.

Additional detail on providers, schemes and investment options is available online at www.sorted.org.nz.