Default settings on KiwiSaver funds have given $1billion to banks instead of savers and an unnecessary $70million to the taxman over the past six years, according to a group of financial advisors.
The group have sent an open letter to the Financial Markets Authority and the Reserve Bank asking them to reform the rules so KiwiSavers' funds were not left to languish in low-yielding default plans.
Group spokesperson John Cliffe said 400,000 KiwiSavers automatically assigned to conservative funds had lost out.
He said the big five Australian-owned banks benefited from KiwiSavers staying in conservative accounts, because the banks held investments in their own and each other's securities, and charged management fees on those arrangements.
However, an ANZ spokesperson denied it makes more money from people in conservative funds.
In March, about 35 percent of the $4.6 billion in default funds were invested in big banks ASB, ANZ, BNZ, Westpac and insurer AMP.
Mr Cliffe told Nine to Noon the default funds were supposed to be temporary holding places and the big banks benefited from keeping people in conservative funds.
"And so why haven't the default suppliers got in contact with all these ... clients that they've been given to give them the sort of assistance that they need, that's the fundamental question," Mr Cliffe said.
"There's a big conflict of interest they face.
"If they were to switch those members out there would be a substantial reduction in investment in their own products."
Mr Cliffe said not enough was being done to educate New Zealanders about the benefit of putting their savings into a more balanced fund, which typically outperforms conservative funds over time, he said.
The three types of KiwiSaver funds are conservative, balanced and growth.
Mr Cliffe said you could solve the problem instantly by converting all conservative default schemes into balanced funds.
Excess taxes were paid by KiwiSavers in instances where Inland Revenue did not have the saver's tax code, so charged the default maximum 28 percent income tax rate off their savings.
Mr Cliffe said that was the fault of funds not contacting their members to get their income tax rate, which could be 10.5 percent or 17.5 percent.
The Financial Market Authority said in a statement it was considering the points raised in the open letter.
It said in a 2017 report that providers needed to do more to engage with savers, but it was not appropriate to use its powers to require action.
Fees are actually lower in conservative funds - ANZ
ANZ general manager of wealth products Ana-Marie Lockyer said it was not true it makes more money by keeping people in conservative KiwiSaver funds.
"Actually, the fees are lower for conservative-type funds than they would be for more growth-orientated funds, given the investment management practises and research that's required with those more growth-biased assets.
"So I don't think there's any conflict in that regard that providers are ... not contacting people people and getting them to move out of conservative funds."
Ms Lockyer said ANZ 100 percent supported moving the default KiwiSaver plan from conservative to 'lifetime' or balanced.
She said ANZ does everything it can to get people into the right saving scheme - including calling and and writing to customers - and it was about to launch an online information portal to help.
But not enough people were deciding to make the jump to more aggressive saving, Ms Lockyer said.