Changes to KiwiSaver mean those who join the scheme at age 18 could be almost $150,000 better off at retirement, the government claims.
Watch Finance Minister Grant Robertson and Commerce and Consumer Affairs Minister David Clark talk about the changes here:
On the advice of an independent panel, the number of default providers will be reduced from nine to six: Bank of New Zealand, Booster, BT Funds Management (Westpac), Kiwi Wealth, Simplicity and Smartshares (NZX).
The companies which did not have their default status renewed were AMP, ANZ, ASB, Fisher Funds, and Mercer.
The changes will come in place once terms of the current providers ends on 30 November 2021.
Minister of Commerce and Consumer Affairs David Clark said the government went to tender last October signalling the need for providers to demonstrate they would go further to deliver more for default members.
Clark says Kiwis deserve "better bang for their buck".
The new default providers got the spots because they have better services and lower fees, he said.
"The six default providers were selected because they offer the best value for money for their members in terms of lower fees and higher levels of service."
"We've also changed the default provider settings to enhance Kiwis' financial wellbeing in retirement. This includes moving the default investment fund type from a conservative to a balanced setting to increase the likelihood of higher returns over the long-term."
The use of a conservative fund as the default scheme has been criticised in the past as limiting the returns investors would receive over the long term.
"To illustrate just how much default members stand to gain, an 18-year-old earning $50,000 a year and contributing three percent of their income to KiwiSaver is estimated to have an extra $143,000 when they reach 65. They will also pay around $3900 less in fees.
"Another enhancement is ensuring default members receive higher service levels from their provider, including guidance at key points on their retirement journey to help them with things like selecting the right fund and contribution rate.
"However, if a member wishes to remain with their current provider or in their current fund, they can choose to do so by contacting their KiwiSaver provider."
Minister of Finance Grant Robertson said the changes will apply some competitive pressure.
"I imagine you will see responses and reactions in the market."
Moving funds to NZ providers from Australian providers was not a specific move, he said.
But Clark said it showed Kiwi-based funds could be competitive.
Clark hoped the news today would encourage others to look at their KiwiSaver and think about where to invest it.
Robertson said while most people actively managed their fund, about 11-12 percent of people did not, and it was them who would benefit.
"We do want people to be actively engaged with their funds so this is an opportunity for everybody to step back and say 'am I getting value for my money?'."
He thought KiwiSaver fees had been too high.
He also hoped competition would lead to lower fees.
Clark said people would also see more transparency about where funds would be invested.
Robertson said the government was also ensuring default funds were invested more responsibly.
"We know many Kiwis care about where their money is invested, so we are excluding any investments in fossil fuel production. This reflects the government's commitment to addressing the impacts of climate change and transitioning to a low-emissions economy."
The default providers are also being required to check with their members at certain times to review whether they are in the right fund and saving the right amount.