The comfortable lie about size
There is a deeply embedded assumption in New Zealand’s retirement savings market that bigger is better. Large KiwiSaver providers have enormous asset bases, household-name branding, and the structural advantage of being where employees land when they do not actively choose. The problem is that analysis of provider performance has repeatedly shown that some of the biggest schemes have lagged smaller, more specialised competitors on returns.
For employers facilitating KiwiSaver enrolment and for the 3.2 million members whose retirement wealth sits inside these funds, the implication is uncomfortable but clear: familiarity is not a strategy, and scale is not a guarantee of anything except fees collected on a larger pool.
Default status is a subsidy for incumbents
The architecture of this problem sits inside the KiwiSaver Act 2006, which established the default provider system. Employees who do not select a fund are automatically enrolled with a government-designated scheme. For nearly two decades, this mechanism has concentrated assets among a small number of large managers, creating a structural moat that has nothing to do with investment skill.
The 2021 default provider reshuffle, in which several long-standing incumbents lost their designation, was an acknowledgement from regulators that size alone was not sufficient justification. But the broader market still reflects years of accumulated inertia. A large default provider can underperform for years and still grow assets simply because new employees keep arriving on autopilot.
A smaller fund that outperforms must compete for every member. A large default fund grows regardless. That is not a market. It is a conveyor belt.
Scale should cut costs, not pad margins
The theoretical case for large funds is straightforward: economies of scale should reduce per-member costs and improve net returns. The Financial Services Council has noted in industry commentary that performance disparities between large and small providers suggest those operational efficiency gains are not being fully translated into member outcomes. The Council has emphasised transparent performance reporting and member education as necessary correctives.
Academic research from Victoria University of Wellington examining retirement savings schemes has found that larger fund size does not consistently correlate with superior returns. Management quality, investment strategy, and cost control matter more than asset base size, a finding consistent with international evidence from Australian superannuation and other OECD pension systems.
Put simply, scale is supposed to be a tool that benefits savers. In practice, it has become a competitive moat that benefits managers.
Employers are not bystanders in this
This is where the story sharpens for a business audience. Every employer in New Zealand is legally required to facilitate KiwiSaver enrolment. Many have default arrangements with a single provider that were set up years ago and never revisited.
The Employers and Manufacturers Association has made the point directly in guidance to member businesses: employer familiarity with a KiwiSaver provider should not override performance considerations. EMA research has indicated some mid-sized and boutique providers have delivered superior risk-adjusted returns compared to larger, more established competitors.
If your company’s default KiwiSaver arrangement is channelling staff into an underperforming fund, you are not a passive bystander. You are an active participant in a suboptimal outcome for your workforce. That may not create legal liability, but it creates a real cost to your people, and increasingly, a reputational risk when employees start asking questions.
Breaking the habit of equating size with safety
The fix is not complicated. Active performance comparison across providers is freely available. Employers can and should review their default arrangements periodically. Savers can switch funds without penalty.
But the behavioural barriers are real. Most members never log in. Most employers treat KiwiSaver administration as a compliance box to tick, not a benefit to optimise. And the largest providers have little incentive to disrupt a system that delivers them assets on a platter.
New Zealand built KiwiSaver to improve retirement outcomes. Twenty years in, the default system has instead created a market where the biggest players can coast on structural advantage while smaller competitors must fight for every dollar. That is a competition failure dressed up as consumer choice, and the people paying the price are the members whose balances are smaller than they should be.
The next time your business reviews its KiwiSaver default, ask a simple question: did we choose this provider because they perform, or because we never got around to checking?