The Government has announced a significant KiwiSaver shake-up which it says will make a real difference to Kiwis' wellbeing in their retirement years.

From July next year, the default 'conservative' KiwiSaver option will be swapped to a 'balanced' fund.

The move – which the Government expects to yield KiwiSavers much better returns over time – will affect close to 700,000 New Zealanders, according to Government figures.

One expert says the majority of people will be better off under the switch but has warned the change in default funds will mean more risk for KiwiSavers and their retirement nest-egg.

In addition to the default shake-up, the Government has also moved to rid all fossil fuel investments from default KiwiSaver funds.

The exclusion includes oil conglomerates and any oil exploration businesses but not petrol companies such as NZX-listed Z Energy.

Finance Minister Grant Robertson and Commerce and Consumer Affairs Minister Kris Faafoi made the announcements this morning.

Speaking to Q&A, Robertson said people who have their KiwiSaver invested in default funds were missing out on "quite a significant amount of money".

He said there was about a 2 per cent difference between the returns when comparing conservative and balanced funds.

That could add up to collectively billions of dollars more for Kiwis once they retire.

But Craig's Investment Partners' Head of Private Wealth Mark Lister has warned that a balanced fund is inherently more risky than that of the conservative options.

Finance Minister Grant Robertson and Commerce and Consumer Affairs Minister Kris Faafoi made the announcements this morning. Photo / Dean Purcell.

"Take this last week for example – balanced funds will have suffered more than conservative funds during the coronavirus-induced sell-off."

Although that shouldn't bother anyone with many years until retirement, Lister said it was something people need to be aware of.

"In exchange for the higher long-term return, you have to accept a bumpier ride along the way."

Robertson said the Government was thinking long term as many people's KiwiSaver is put in, and stays in, the default option.

"If we're going to have New Zealanders staying in those default funds for longer, they deserve those returns.

"On balance, over time [people] will do well out of this."

The changes will come into effect in June next year, as will the new moves to ban fossil fuel investments.

Climate Change Minister James Shaw said no New Zealander should have to worry about whether their retirement savings are causing the climate crisis.

"People setting aside money for the future want to know their savings are being put to good use, helping to create a better future for their kids and grandkids."

But oil lobby groups and the National Party are critical of the move – National said it was "nanny state" behaviour.

"It shouldn't be up to Jacinda Ardern to tell Kiwis they can't invest in a product they use legally every day," National's finance spokesman Paul Goldsmith said.