How to Choose a KiwiSaver Provider in New Zealand

Choosing a KiwiSaver provider can feel a lot more complicated than it should. There are now 30+ providers to choose from, and every provider seems to describe themselves differently.

How are you meant to know which one to choose!

The good news is that you don’t need to predict which provider will deliver the best return over the next 30 years. Instead, you can narrow the decision down to a few things that actually matter.

What type of KiwiSaver fund should you be in?

Before we get into the providers, you need to know what type of fund actually suits you. Broadly, there are six different types of funds:

• Default Fund: Usually where someone may end up if they haven’t actively chosen a fund. Default funds are generally designed to be relatively conservative, but they may not be the best long-term option for everyone. If you’re in one, it’s worth actively checking whether it matches your timeframe and risk tolerance.
• Conservative Fund: Invests more heavily in cash and fixed-interest assets, with a smaller allocation to shares. Returns are generally steadier, but long-term growth is usually lower. It can suit people who expect to use their KiwiSaver relatively soon or who are uncomfortable with large market falls.
• Moderate Fund: Sits between conservative and balanced. You’ll generally have more exposure to shares and other growth assets than a conservative fund, but still a meaningful defensive allocation. It may suit investors wanting some growth without taking on the volatility of a higher-growth fund.
• Balanced Fund: Typically holds a fairly even mix of growth assets, such as shares, and defensive assets, such as bonds and cash. It aims to provide a middle ground between long-term growth and stability, making it a common option for people with a medium-to-long investment timeframe.
• Growth Fund: Holds most of its money in growth assets, particularly shares. That means greater short-term ups and downs, but potentially higher returns over long periods. Growth funds can make sense for people who have many years before retirement or buying their first home and can tolerate market falls along the way.
• Aggressive Fund: Usually has the highest allocation to shares and other growth assets, sometimes close to 100%. It offers the greatest potential for long-term growth, but also the largest potential short-term losses. It generally suits investors with a long timeframe who are comfortable seeing their balance fall significantly during market downturns.

The key point is that there isn’t one “best” KiwiSaver fund type. The right option depends mainly on how long you have before you need the money and how comfortable you are with seeing your balance fall during bad markets. A 30-year-old investing until retirement has a very different timeframe from someone planning to withdraw their KiwiSaver for a first home next year.

Once you've narrowed down your preferred fund type, you can then compare providers offering that type of fund.

How does the KiwiSaver provider invest your money?

There are two common approaches that KiwiSaver providers use when deciding how to invest your money:

• Active Management: where investment managers make decisions about which investments to buy and sell.
• Passive Management: where the goal is generally to track markets at a lower cost rather than trying to outperform them.

Neither approach guarantees a better result. What matters is understanding what you’re actually buying.

Look at:

• Whether the fund is active or passive
• What percentage is invested in growth assets (e.g. stocks)
• Which countries and markets it invests in (e.g. New Zealand)
• How diversified the portfolio is (look at the number of holdings)
• Whether there are specific ethical or sustainability exclusions (a great tool here is Mindful Money - they collect this data for most KiwiSaver funds)

If you can't explain in a sentence or two how your KiwiSaver money is being invested, it's probably worth doing a little more research.

How important are KiwiSaver fees?

Fees matter because they are deducted from your investment year after year, including as your KiwiSaver balance gets larger.

The FMA says KiwiSaver costs can include management, administration, supervisor and, in some cases, performance-based fees. Your KiwiSaver provider's Product Disclosure Statement ("PDS" - very important document to read for any investment) should explain the fees applying to the fund.

Over a 30-year investing timeframe, even a relatively small annual fee difference can add up. But in saying that, simply picking the fund with the lowest fee might not be the right decision for your situation.

Instead ask:

What am I getting in return for the fee?

A more expensive actively managed fund should have a clear reason for charging more than a simple index-based alternative. Importantly, higher fees don't automatically mean higher returns or better service. The Sorted website has a great tool for comparing funds side-by-side, with clear infromation about the fees each fund charges.

Fees are one of the few parts of investing you can know in advance, so they deserve to be taken seriously.

Should you choose a KiwiSaver provider based on performance?

Past performance is worth looking at...but, it shouldn't be the whole decision. A common mistake is finding the KiwiSaver provider sitting at the top of a one-year performance table and assuming you've found the winner.

Unfortunately, investing doesn't work like that.

Sorted warns against switching providers largely because another fund has recently delivered higher returns, because past returns don't predict what comes next. Instead, compare similar funds over longer periods. A growth fund for example, should be compared with other growth funds, not a conservative fund.

If a fund has consistently lagged comparable alternatives for a long period, that's worth investigating. But last year's winner isn't automatically next year's winner.

My favourite resource to compare performance is the Morningstar 360 KiwiSaver reports. They've recently put these behind a paywall, so for a historic view you can visit the historic Morningstar KiwiSaver reports here.

Does the KiwiSaver provider itself matter?

Yes Yes Yes - Absolutely.

Returns and fees get most of the attention, but you could potentially be with your KiwiSaver provider for decades.

Consider what dealing with them is actually like. Do they have a decent app or online dashboard? Can you clearly see where your money is invested? How easy is it to change funds? Do they provide useful reporting and educational information? Can you speak to someone when you need help?

Sorted's KiwiSaver Fund Finder actually includes provider service ratings alongside fees and historical returns, because these differences can matter too.

They probably shouldn't override a bad investment strategy or excessive fees, but they're a perfectly reasonable tiebreaker between otherwise similar providers.

Should you keep KiwiSaver with your bank?

Having KiwiSaver with the same bank as your everyday accounts is convenient, but, that's about it!

There's nothing inherently wrong with choosing a bank as your KiwiSaver provider, after all, it's pretty convenient. However, seeing your KiwiSaver balance beside your mortgage and savings accounts every morning isn't an investment strategy.

Treat your bank like any other KiwiSaver provider. Compare its funds, fees, investment strategy, long-term performance and service against the alternatives.

Can you change KiwiSaver providers?

Absolutely, you aren't locked into the provider you originally joined.

The IRD says you can change KiwiSaver providers at any time, although you can only belong to one KiwiSaver provider at once. Your new provider will normally handle the transfer process. That means choosing a KiwiSaver provider doesn't need to feel like a once-in-a-lifetime decision.

I recently switched my provider over and it took just 13 days.

So, which KiwiSaver provider should you choose?

There isn't one KiwiSaver provider that's best for everyone. A better way to decide is to ask five questions:

1. Am I in the right type of fund for when I'll need the money?
2. Do I understand and agree with how this provider invests?
3. Are the fees reasonable for what I'm getting?
4. Has the fund performed reasonably against comparable funds over the long term?
5. Does the provider offer the service and features I actually care about?

If you can answer those five questions confidently, you've already done more homework than simply choosing whichever provider had the best return last year.

And when KiwiSaver could be one of your largest assets by retirement, it's worth spending an hour getting the decision right!

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