New Zealand: KiwiSaver Default Providers – A Step Into The Unknown

Last Updated: 7 May 2006
Article by Alasdair McBeth and Tracey Cross

Selection of the providers of default products

Following our earlier newsflash on the KiwiSaver Bill (Bill), we now provide an update for those who are interested in becoming default providers. Our main observation is that, as the Bill will progress in parallel with the tender process, providers will be in the unenviable position of tendering to provide services while there is still uncertainty and a lack of detail in a number of key areas. We elaborate on this below.

1. What do I do to become a default provider?

Tender process

The Ministry of Economic Development (MED) has indicated that a Request for Proposal (RFP) for KiwiSaver default providers will be issued in late April 2006, with a closing date for submitting a tender sometime around mid-June 2006. It is expected that the RFP will contain key information regarding the criteria for appointment as a default provider. In the meantime, the Registration of Interest document (ROI) recently released by MED contains some preliminary guidance (which we consider in more detail below).

MED requested that interested parties register their wish to receive the RFP by 7 April 2006. However, even if you have not registered an interest with MED, you will still be able to submit a response to the RFP (once available) by obtaining a copy from either the Government Electronic Services website ( or

At the same time as the tender process is taking place, the Bill will also be progressed. Public submissions on the Bill are due by 28 April 2006. The Select Committee will hear and consider the submissions and is due to report back to the House by 1 September 2006, although these dates could change at any time. The Act is due to be passed in October 2006 with a commencement date of 1 April 2007.

This means that, although the RFP will contain the key criteria for assessment of potential applicants, there will still be uncertainty for those entering the tender process as further amendments to the Bill can still be made. There is also the possibility of regulations being passed as there are extensive regulation-making powers in the Bill.

MED have stated that the tender process will involve interviews with potential providers, site visits (if considered appropriate), fee negotiations and due diligence.

In terms of numbers, there is no certainty as to how many default providers will be appointed. Under the Bill, there can be any number of default providers. It is expected that between four and six default providers will be appointed. However, regulations may be passed prescribing the maximum number of default providers (s194(f) of the Bill).

The long gap between the time by which tender submissions must be made (June) and the date of appointment (October) gives MED a long period to assess, choose, shortlist and then negotiate with applicants.

Providers of default schemes will be appointed by an instrument of appointment which will be entered into once the Act comes into force (around October 2006). Once appointed, default providers are expected to be ready to accept members who are allocated to them from the anticipated commencement date of 1 April 2007.

Appointment process

As noted above, default providers will be appointed by a formal instrument of appointment. Further uncertainty arises from the fact that this process remains subject to a number of further variables including:

  • The Minister's power to make the appointment of default providers subject to such terms and conditions as he or she sees fit (s158(3)).
  • The exercise of regulation-making powers to specify the information that must be contained in the instrument of appointment of a default provider (s194(g)).

It is to be hoped that the RFP will include any such terms and conditions, and any requirements that are intended to find their way into regulations, even though these will not have been formally adopted at the time the RFP is released. However, there has been no indication that this will be the case.

2. What is a KiwiSaver default provider?

A KiwiSaver default provider is a person who is appointed by government to provide:

  • A default KiwiSaver scheme; and
  • A default investment product within that scheme.

What are the criteria for being a default provider?

The Bill and ROI both set out criteria for qualification and selection for default schemes and default products. The RFP will contain much more detail on the criteria outlined in the ROI.

To qualify as a default KiwiSaver scheme, the scheme must:

  • Qualify as being a KiwiSaver scheme under the Bill; and
  • Have a trustee corporation as one of the trustees of the scheme.

To qualify as a KiwiSaver scheme, a scheme must:

  • Be established and governed by a trust deed under New Zealand law.
  • Have retirement benefits as its principal purpose.
  • Be a defined contribution scheme.
  • Have one independent trustee (a trustee corporation will fulfil this requirement).

We believe it is likely that default schemes will follow the master trust format, making a number of products available within the default scheme. The ROI states there needs to be a default product within the scheme and this will have a conservative risk profile. The RFP will include broad guidelines on the investment risk profile for the conservative product.

ROI expectations

The ROI sets out key expectations for default providers. Providers are expected to:

  • Meet new tax rules for qualifying collective investment vehicles (QCIVs) for the default scheme. A ministerial announcement about the new QCIV rules is expected shortly, and the proposed tax bill is expected to be released in May. This bill will also need to go through the select committee and legislative process and may not be passed into law at all. Currently it is expected that it will be enacted before the end of October – about the time when the default providers will be appointed. Until this yet-to-be-seen tax bill is passed into law, it is difficult to assess all the potential tax issues.
  • Accept all members and contributions, regardless of the size of the contributions.
  • Provide a complete business solution including trusteeship, administration, investment management and custodial business functions. It is also acknowledged that providers may wish to form a consortium to achieve this.
  • Deliver competitive fees across the default scheme, and particularly for the default investment product.
  • Demonstrate commitment and capability in delivering quality savings products.
  • Have systems that will work with IRD's central administrator system. This has been identified as one of the crucial requirements for potential default providers.
  • Provide a minimum level of information for members.
  • Agree to a minimum level of service standards to run the default scheme.

While useful, the ROI expressly states that the list of expectations is not intended as an extensive, all-inclusive and exhaustive or complete list. Further detail on many of the ROI expectations above will not be available until the RFP is released.

2. What does it mean to be a default provider?
Automatic enrolment into default schemes

From 1 April 2007, all new employees will join a KiwiSaver scheme unless they choose to opt out. Employees will join a particular KiwiSaver scheme in the following order of preference:

  • The employee's choice of KiwiSaver scheme; or
  • Where the employee does not make a choice but the employer has a preferred scheme, then the employer's preferred scheme; or
  • If neither the employee or employer make a choice, then a default scheme provisionally allocated by IRD.

It is anticipated that many employees will be allocated to a default provider because they will not act to opt out of the KiwiSaver scheme, choose a scheme themselves, or their employer has not selected a preferred KiwiSaver scheme.

If you are appointed as a default provider, new employees who do not opt out, join an employer’s preferred scheme or select a scheme themselves will be allocated to your default scheme as follows:

  • All new employees will be given a KiwiSaver information pack from IRD via the employer.
  • The employee is provisionally allocated by IRD to a default scheme on a sequential basis (as between the default providers). IRD notifies the employee of the name of the default provider and default product and sends an investment statement for the default product.
  • Automatic deductions will be made from the employee's wages via their employer and held by IRD for three months.
  • In general, if, after three months from the date of the employee's first contribution, IRD has not been notified that the employee is part of another KiwiSaver scheme, the employee becomes a member of a default scheme.
  • Automatic membership in a default scheme creates a membership contract between the member and the default provider without the need for a default provider to complete a contract with each individual allocated to them.
  • IRD will notify the employee of that fact.


The automatic contributions continue unless the member elects to take a contributions holiday, permanently emigrates or a case can be made for withdrawal of funds on the grounds of serious financial hardship. It is possible for the provider and IRD to agree on a minimum threshold for the payment of contributions, with IRD holding the funds until they reach that threshold.


The Bill provides that a person can only be a member of one KiwiSaver scheme at a time. They can, however, have more than one account or investment product within a KiwiSaver scheme. From a provider’s point of view, there may be administrative and cost advantages to placing a limit on the number of products members are allowed to participate in at any one time. There is nothing in the Bill that prevents the provider from doing this.

Marketing opportunities

As a default provider, you can market the default scheme as a preferred KiwiSaver scheme to employers, or as an investment choice to the public. If employees actively choose your scheme, you will be responsible for notifying IRD and providing the applicant with an investment statement, not IRD.

Investment statements

The Securities Act will apply to KiwiSaver Schemes, meaning that an investment statement will need to be provided.

  • A default provider will need to supply IRD with investment statements for their default product. IRD will send these to employees allocated to that default scheme. Employees will be treated as having received an investment statement for the allocated default fund if IRD has sent one (which is an exception to general securities law, made to deal with the effects of automatic enrolment and default allocations).
  • You need to supply an investment statement for a default product to an employee if he or she contacts you directly.

3. Key issues for default providers


The power to make regulations is a major area of uncertainty. Section 194 of the Bill states the purposes for which regulations may be prescribed. The list is extensive and covers items that are significant for providers. In particular, regulations may be prescribed which will have a significant impact on system requirements and fee subsidies. These items alone have a significant impact on system development costs and pricing. This is coupled with the political risk that if there is a change of government in the next election, that new government might repeal the KiwiSaver Act. In short, this means that prospective default providers are faced with some hard decisions as a new system will need to be in place by 1 April 2007.

Tax treatment

The cost in changing/developing systems to comply with new QCIV rules has been identified as one of the key issues for default providers, as the new rules have not been released and the timeframes to achieve compliance are very short.

Importantly, default providers can operate funds which do not have QCIV status in order to provide investor choice and not limit providers to one type of investor.

Like many in the industry, we will be keeping a close eye on developments in this area, particularly with the upcoming ministerial announcement and tax bill on the subject. We will be in touch again as soon as any further information is available.

Investment statement cost

There is no way of knowing how many employees will be allocated to default schemes, creating potential unrecoverable costs in supplying investment statements to IRD for distribution.

Treasury has also shown a desire that KiwiSaver providers ensure their investment statements are ‘succinct’. However, investment statements are currently required to be concise and understandable, so unless there is intervention with the making of specific regulations for investment statements, there will be no difference from the current requirement.

The Bill does contain a power to make regulations that vary requirements of the Securities Regulations in relation to KiwiSaver investment statements, and it is possible that this power will be used. We strongly support any proposal for simplifying investment statements and making products more readily comparable and will be making a submission to the select committee considering the Bill on this point.

Small balances

Once members in KiwiSaver schemes have paid contributions for 12 months, they can apply to take a contributions holiday (the minimum period of which is three months with the maximum being five years). There is no limit on the number of holidays that can be applied for, so contributions could be halted indefinitely resulting in KiwiSaver accounts with little activity and low balances.

Dormant accounts

If a KiwiSaver member cannot be located, trustees of schemes are required to hold the money in the member’s account until that member is at least five years older than the qualification age for New Zealand superannuation (currently 65). While there is relief for providing information to the member, this would still leave default providers with the burden of maintaining dormant accounts.

Financial hardship

A member may apply to withdraw funds if they meet financial hardship withdrawal requirements defined in the draft KiwiSaver rules attached to the Bill. As the administration of these ‘serious financial hardship’ applications under the Bill is left to the trustees of a scheme, this creates potential administration costs for default providers dealing with low income earners who apply under these provisions.

Power of the Court

The Bill contains a power for the High Court to order providers and trustees of default KiwiSaver schemes to act or stop acting in a way that the Court considers would breach the terms and conditions of the instrument of appointment. This power of intervention could potentially create legal and compliance costs.

Summing up

The short deadlines and parallel activities in the tender process, the taxation review and the commencement of KiwiSaver, together with the uncertainty of the final form of requirements that KiwiSaver will impose on default providers make it difficult for providers to properly assess the risks they may face in deciding whether to become a default provider. We will keep you updated as further information is released.

We also encourage you to contact us with any queries you may have about becoming a default provider or about the KiwiSaver initiative in general.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions