Big-name KiwiSaver providers including Fisher Funds, AMP, and ANZ are facing scrutiny over underperformance relative to benchmarks, with several default and growth funds returning below inflation for the 12 months to March 2026, prompting questions about fee structures, asset allocation, and the long-term adequacy of retirement savings for over 2.8 million New Zealanders enrolled in the scheme.
The Bottom Line
- Default KiwiSaver funds returned an average of 2.1% over the past year, lagging behind inflation at 3.4% and the S&P/NZX 50 Index’s 8.7% gain.
- High-fee active funds are under pressure as low-cost index providers like Smartshares gain share, now managing over NZ$45 billion in assets.
- The Retirement Commissioner has signaled a review of default fund performance benchmarks by Q3 2026, potentially triggering reallocation of NZ$120 billion in default assets.
Performance Gaps Expose Structural Flaws in Default Fund Design
Data from the Financial Markets Authority (FMA) shows that 68% of default KiwiSaver funds failed to outperform the OCR-plus-2% benchmark over the five years to March 2026, with conservative and balanced options dragging returns due to overexposure to low-yielding New Zealand government bonds. Meanwhile, equity-heavy growth funds averaged 5.9% annual returns, still below the 7.5% long-term assumption used in retirement projections. This gap has real implications: a 30-year-old contributing the minimum 3% of salary would accumulate approximately NZ$142,000 less by age 65 than projected under current scheme assumptions.
Providers defend their positioning, citing volatility mitigation and liquidity needs during market stress. Still, critics argue that the default structure—originally designed for simplicity—now undermines outcomes. As Reserve Bank of New Zealand Governor Adrian Orr noted in a recent speech, “Default settings should not become a permanent barrier to adequate retirement income, especially when lifecycle alternatives exist.”
Fee Compression Accelerates as Index Funds Gain Traction
The average annual fee for growth-oriented KiwiSaver funds has declined from 1.15% in 2020 to 0.89% in 2025, driven by competition from low-cost providers. Smartshares, a subsidiary of NZX, now manages NZ$45.3 billion across its index fund range, up 34% YoY, while traditional active managers like Fisher Funds (NZ$28.1 billion) and AMP (NZ$19.7 billion) have seen slower growth. This shift mirrors global trends: Vanguard’s global index fund assets surpassed USD$8 trillion in 2025, pressuring active managers worldwide to justify fees.
In response, several providers have launched “low-cost active” hybrids. ANZ Investments introduced its Trans-Tasman Index Plus fund in late 2025, blending 80% passive exposure with 20% active tilts, charging 0.45%—still above Smartshares’ 0.20% core index offering. Yet adoption remains slow. only 12% of new KiwiSaver enrollments chose hybrid options in Q1 2026, suggesting inertia in default settings continues to favor legacy providers despite performance gaps.
Regulatory Pressure Mounts Ahead of Formal Review
The Ministry of Business, Innovation and Employment (MBIE) confirmed in April 2026 that a review of default fund investment strategies will begin in July, with potential outcomes including revised asset allocation glide paths, stricter performance thresholds, or even a shift toward age-based defaults as the standard. This follows a 2025 Treasury report estimating that suboptimal default fund performance could cost New Zealanders NZ$1.8 billion in foregone retirement income annually by 2035.
Industry leaders acknowledge the need for evolution. Jane Thompson, Head of Retirement Solutions at ASB, stated in an interview with NZ Herald, “We support a principles-based review that focuses on outcomes, not just returns—especially longevity risk and inflation protection.” Meanwhile, Fisher Funds’ CEO Graham Evans warned against overcorrection: “We must avoid creating a one-size-fits-all mandate that ignores individual risk tolerance and retirement timelines.”
Broader Implications for Household Wealth and Consumption
KiwiSaver balances reached NZ$120.4 billion in Q1 2026, equivalent to 48% of household disposable income. With returns lagging, real wealth accumulation slows, potentially constraining future consumption—a concern given that household spending drove 62% of NZD GDP growth in 2025. Lower-than-expected retirement balances may also increase pressure on New Zealand Superannuation, the universal state pension, which already faces long-term fiscal strain as the 65+ population grows from 18% to 22% of total by 2035.
Internationally, the situation mirrors challenges in Australia’s superannuation system, where default fund returns have similarly trailed benchmarks, prompting the Productivity Commission to recommend greater use of lifecycle strategies. New Zealand’s smaller scale and centralized default structure may allow for faster reform, but provider consolidation remains a risk: the top three managers now control 52% of industry assets, up from 46% in 2020.
The Path Forward: Outcomes Over Benchmarks
The current debate risks focusing too narrowly on quarterly returns rather than retirement adequacy. A more holistic framework—incorporating wage growth, contribution rates, and drawdown flexibility—would better serve members. As the FMA prepares its 2026–2028 Statement of Intent, indicators suggest a shift toward principles-based oversight, emphasizing member outcomes over rigid benchmarks. For now, the onus remains on providers to demonstrate value in an era of fee transparency and member mobility, where a single click can redirect hundreds of millions in assets.
Disclaimer: The information provided in this article is for educational and informational purposes only and does not constitute financial advice.
