Kiwis risk throwing away thousands in KiwiSaver fees

Selected KiwiSaver providers are charging hundreds of dollars more in total fees than the average fee for equivalent fund types, Canstar research reveals.

In 2017, Canstar rated and reviewed 16 KiwiSaver providers with a total of 19 KiwiSaver schemes and 129 funds across six fund types: aggressive, growth, balanced, conservative, defensive and cash.

Across the 34 Balanced KiwiSaver funds Canstar rated, there is a $123.30 difference between the minimum total fee cost of $95.55 and the maximum cost of $218.85. And there’s a $65.86 difference between the average total fee cost of $152.99 and the maximum fee total. 

The gap widens much further in the case of Aggressive KiwiSaver funds. Across the 19 Aggressive KiwiSaver funds that Canstar rated, the maximum total fee is $337.30. This is $230.25 more than the minimum total fee ($107.05) for this fund type and $145.74 more than the average fee ($191.56).

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Canstar’s fee calculations are based on a KiwiSaver balance of $11,500 and take into account the member fee and total fund charges (made up of total management and administration charges and the total performance based fees, where total management fee and other management and administration charges includes basic management fee and other management and administration charges).

For those willing to take on some risk with their KiwiSaver investment, a fund with a higher proportion of growth assets offers the potential for higher long-term returns than in a low-risk fund. On average, Aggressive KiwiSaver funds had a 9.9% rate of return, over the year 1 April 2016 to 31 March, according to Canstar’s calculations.

This is considerably higher than the average rate of return in a Cash KiwiSaver fund – 0.6% – the fund type that has 0% in growth assets.

Canstar’s rate of returns calculations are for the financial year from 1 April 2016 and 31 March. Note, these are averages, so actual returns vary across fund types.

Here’s how KiwiSaver fees stack up across the KiwiSaver fund types:

Profile Number of funds rated Minimum total cost Average total cost Maximum total cost
Aggressive 19 $107.05 $191.56 $337.30
Growth 27 $104.75 $168.17 $270.45
Balanced 34 $95.55 $152.99 $218.85
Conservative 25 $43.70 $120.27 $180.90
Defensive 11 $91.99 $109.20 $167.10
Cash 13 $57.90 $90.30 $140.65

Battle lines drawn over KiwiSaver fees

To mark the 10th anniversary of KiwiSaver, ANZ released a white paper, including recommendations on KiwiSaver based on its survey of 1000 people on their attitudes toward KiwiSaver.

In its paper, ANZ says young people are following a “concerning trend” of focusing too much on KiwiSaver fees.

“Our research shows that younger people and those with lower balances are placing more emphasis on fees that are low as possible (even if it means compromising on returns).

“This trend is a concern, as choosing a fund solely on fees means members may miss out on greater returns and a larger balance in the long term,” ANZ argues in its research paper.

According to Canstar’s research, here’s how rates of return on KiwiSaver funds currently stack up:

Fund type Average annual returns
Aggressive 9.9%
Growth 8.2%
Balanced 6.2%
Conservative 3.7%
Defensive 1.1%
Cash 0.6%

Canstar’s rate of returns calculations are for the financial year from 1 April 2016 and 31 March. Note, these are averages, so actual returns vary across fund types.

Compare KiwiSaver funds 

However, Auckland University of Technology finance lecturer Ayesha Scott points out, although the link between fee level and rate of return is far from clear-cut, avoiding exorbitant fees is at least within the investor’s control.

“Ultimately, the best advice for anyone embarking on KiwiSaver investment is to choose the fund with the lowest fee structure for the fund type you are investing in (defensive, conservative, balanced, growth or aggressive [or cash]. 

“You can’t bank on good returns continuing into the future, but you can opt for an investment that costs less, potentially increasing your retirement savings to the tune of thousands of dollars,” Dr Scott says.

Key considerations with KiwiSaver fees

It’s essential to peel back the layers of KiwiSaver fees, to ensure you aren’t getting charged unreasonably. As Canstar research shows, there are a wide range of total fee costs within the fund types – not just between them.

And, just because a provider charges more for its fees, does not mean that a KiwiSaver member can automatically expect better returns.

What’s more, a hundred dollars, or so, easily leads to losing out on thousands of dollars in KiwiSaver returns, when you take into account compounding interest, over the life of your investment.

Check out Canstar’s 2017 report on KiwiSaver,  to help weigh up fees, against any benefits and performance.

Compare KiwiSaver funds 

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