The Government has been praised for plans announced yesterday that will mean KiwiSaver's default funds will stop investing in fossil fuels from next year.

Default providers are funds allocated to people who do not actively choose a fund when they join KiwiSaver.

Commerce and Consumer Affairs Minister Kris Faafoi says a balanced default fund will be more rewarding for people later in life, while Green Party co-leader James Shaw says people shouldn't be worrying about whether their retirement savings are contributing to the climate crisis.

Mindful Money is a charity set up to bring transparency to KiwiSaver investments.

Founder Barry Coates told Kate Hawkesby the surveys they've done say that most people would rather invest in a fund that didn't have fossil fuels in it due to the climate change impact.

"What this does is it basically says if most of the people don't want it, then actually if you're being allocated to a fund, then those funds should exclude fossil fuels, so I think it's a good decision."

However, he says there is a case for extending the ban. Coates says they'd like to see a wider range of weapons excluded, as right now it's just things like land mines and cluster bombs.

"At the moment most KiwiSaver funds exclude tobacco but there's no requirement on default funds to exclude them."

• KiwiSaver changes: What the new rules mean for your nest-egg