You're paying up to $40,000 for KiwiSaver: What do you get?

Wednesday, 20 June 2018

AUT's finance lecturer Ayesha Scott: ''It isn't as simple as New Zealanders being ripped off. That is part of the story… It is very unclear why we pay as much as we do.'

Presenting annual fees to clients as a dollar figure is a good step, but KiwiSaver providers could still do more to make their charges as 'clear as humanly possible', the Financial Markets Authority (FMA) says.

Many KiwiSaver members have recently received, or will receive over the coming weeks, their first statements from providers in which what they pay is spelt out, rather than explained as a percentage of their total.

A 35-year-old woman with $50,000 in a KiwiSaver growth fund, earning $85,000 a year and contributing 3 per cent, matched by 3 per cent from her employer, could pay anything from $14,500 to about $40,000 over her working life for her fund.

FMA head of regulation Liam Mason said the new annual statement information would be a good opportunity for KiwiSaver members to think about whether they were in the right fund, paying the right tax rate and whether they were getting value for money from their provider.

He said, while the dollar amounts were a good step, there was still a lack of understanding of what the fees were being charged for, and what people received in return.

'Different funds structure it in different ways and it's still not entirely clear to me that these designs have been put together with a view of how could we make this as clear as possible, to help investors to understand that they are getting value for money.'

He said providers should want to encourage the conversation about fees, not avoid it, if they had a good story to tell around what they were providing for the fees charged.

What was being communicated to investors was a constant source of attention for the FMA, he said.

Sam Stubbs, founder of not-for-profit, low-cost KiwiSaver scheme Simplicity, said KiwiSaver providers were close to having earned $270 million in fees this year.

Simplicity charges a base management fee of $30, plus 0.3 per cent of the amount invested each year. Stubbs said that beyond that, up to 90 per cent what providers charged was simply profit. 'It's one of the most lucrative areas of the finance sector.'

You'll pay tens of thousands of dollars over your investing life.

AUT Business School lecturer Ayesha Scott said many providers did not supply information in a format that was easy to digest. She said people would pay more for KiwiSaver in New Zealand, per dollar invested, than they would in Australian superannuation funds.

'It isn't as simple as New Zealanders being ripped off. That is part of the story… It is very unclear why we pay as much as we do.'

She said it was not explained what It cost to run a managed fund in New Zealand. 'For all we know – and I suspect not – this is what it costs… Until it's explained, we have to assume they are making very large profits and that's coming out of New Zealand KiwiSavers.'

Scott said having fees in a dollar amount was only helpful if people knew what other people in similar funds were paying. 'Unless you can compare this information, you have no basis for knowing whether you are paying a comparatively high or low amount.'

Chris Douglas, director of manager research ratings, Asia-Pacific, at research house Morningstar, said he did not agree people were being ripped off.

A range of fee structures and product types was appropriate, he said. 'We couldn't say everything should be cheap. You want to get a variety of options available to investors.'

Higher-fee models usually had high-touch service models, he said. Fees should drop as the amount of money in KiwiSaver grew, he said.

Sam Stubbs says market pressure is the best way to influence fees.

Even at $50 billion in total invested in KiwiSaver schemes, it was not a lot of money by international standards.

'Once you strip out ANZ and ASB, they have 45 per cent of the market between them. There's not a lot of money in the smaller players. We don't have true economies of scale yet.'

ANZ general manager of wealth products Ana-Marie Lockyer said fees were affected by the management style of the KiwiSaver fund, who was charged with selecting its investments, the administration, regulatory requirements and management of the secure systems and processes needed.

There were also client servicing costs to cover, client interfaces, digital platforms and the provision of financial advice. It was not cheap to set up and run a KiwiSaver scheme, she said.

'Fees vary because every provider is different.'

She said what was most important for a saver's retirement nest egg was what their return was after fees were deducted.

Every member should have a clear understanding of what their KiwiSaver provider offered and whether they were getting value for money, she said.

Providers regularly reviewed their fees and ANZ had reduced its charges 20 per cent since KiwiSaver began.

'It's great to improve transparency around fees but hopefully all providers can communicate with their customers what these fees cover, then customers can decide what is important to them.'