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KiwiSaver fees up, despite new disclosure regulations

media release


Embargoed until 1am, 10 September 2014


KiwiSaver fees up, despite new disclosure regulations

CANSTAR researches 130 funds from 27 providers to determine outstanding value for workers.

Since the commencement of KiwiSaver in 2007, an impressive 2.35 million New Zealanders have become KiwiSaver members – an increase of almost 200,000 over the past 12 months alone. With growing popularity (and balances) the government last year introduced new KiwiSaver (Periodic Disclosure) Regulations, to help savers better compare funds on a like-for-like basis. While the great news is that the new regulations do aid comparison, unfortunately it hasn’t resulted in a decrease in fees charged.
“Often greater ease of comparison leads to increased competition and a downward pressure on fees,” observed CANSTAR's General Manager – New Zealand, Derek Bonnar. “CANSTAR’s annual analysis of KiwiSaver products, though, found that while the minimum fee observed on a standard profile had not changed at all, the maximum and average fees charged had in fact increased slightly over the past 12 months.”
CANSTAR calculated the total fees payable in a Balanced KiwiSaver fund with a $7,500 balance, as follows:

YearMinimum $ feeMaximum $ feeAverage $ fee
2013$63.75$135.00$101.59
2014$63.75$143.55$108.70
Difference-$8.55$7.11

Source: Canstar KiwiSaver 2013 & 2014 Star Ratings.
Based on products assessed for star ratings reports, for an account balance of $7,500 in a Balanced profile.

“Even small differences in fees can have a large effect on your eventual nest egg, thanks to the power of compounding,” said Mr Bonnar. “Investors need to be mindful of a number of fees, including the member fee, management fee, administration fee, Trustee fee and expense fee. Ultimately, they should check the quoted ‘total expense ratio’ of their fund, which must be disclosed under the new requirements, and compare it with other products on the market.”


Long-term performance is important, too.
As well as competitive fees, a good long-term performance is also vital. CANSTAR has calculated the difference that an extra 2% net return could make for workers, all other things being equal. Based on a 3% employer contribution, an 8% personal contribution and appropriate tax levels, workers on the following salary levels could expect the following nest egg over 30 years:

Starting salaryPersonal + employer contributionEarning rate
(after fees)
Projected balance after 30 yearsEarning rate (after fees)Projected balance after 30 years
$20,000$108,149.515.60%$247,550.667.60%$327,240.91
$30,000$162,224.265.60%$332,405.967.60%$428,179.72
$40,000$216,299.025.60%$412,782.367.60%$520,606.05
$60,000$324,448.535.60%$585,304.127.60%$726,389.97

Source: Canstar.
“Again it’s the power of compounding,” said Mr Bonnar. “An extra two per cent net return each year could see someone starting out on a salary of $30,000 end up with almost $100,000 extra at retirement. Of course, investors shouldn’t switch Kiwisaver accounts to chase short-term returns, because past performance isn’t an indication of future performance. Our research methodology assesses annual cost and total features of Kiwisaver accounts to determine whether or not they provide outstanding value – short-term returns aren’t even considered. Nevertheless, it’s important to look for a fund that has offered a good and reasonably consistent long-term return and it’s interesting to note the potential difference that can make to your retirement funds.”
Who offers outstanding value?
CANSTAR’s annual KiwiSaver Star Ratings report identifies a number of organisations that offer outstanding value for investors within various investment profiles. Overall, the following products have been found to offer outstanding value for 2014, in at least one investor profile. Full details of the ratings are on page 4 of the accompanying report.

“It’s terrific to see a good selection of funds providing outstanding value for hard working Kiwis,” said Mr Bonnar. “We congratulate all the named funds on their achievement.”
Consumers can download the KiwiSaver Star Ratings report at www.canstar.co.nz

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