Westpac reduces KiwiSaver fees after critical report is published

Wednesday, 9 October 2019

KiwiSaver fees are calculated as a percentage of funds under management, so as people save more, the fees they pay rise, even though fund managers don't have to work any harder.

Westpac is to cut fees on its KiwiSaver funds.

It's announcement followed the publication of a report by the Financial Markets Authority (FMA) in which the KiwiSaver fees of big banks came under fire.

Fees paid by KiwiSavers had jumped by 13.5 per cent in the 12 months to the end of March compared to the previous 12 month period, the FMA reported.

“As our KiwiSaver scheme continues to grow, we’ve achieved efficiencies that allow us to pass on fee reductions to our members,' said Westpac's Karen Silk.

And a report it commissioned showed KiwiSaver funds from ANZ, Westpac, Kiwi Wealth and AMP charged far more than similarly-sized funds in Britain.

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Westpac's $1.49 billion KiwiSaver balanced fund charged its investors total fees and costs of 0.98 per cent of their balances, compared to 0.55 per cent charged by the £520 million (NZ$1.06b) Aegon Blackrock balanced fund on offer to UK investors.

Westpac planned to reduce its monthly administration fee charged to all members from $2.25 to $1, and cut the management fee of its cash, default, conservative, moderate, balanced and growth funds by 0.1 percentage points.

The changes would place Westpac's fees among the lowest in the market, claimed Westpac's 'Experience Hub' acting general manager, Karen Silk.

'As our KiwiSaver scheme continues to grow, we've achieved efficiencies that allow us to pass on fee reductions to our members, giving them even better value for money,' she said.

Other bank KiwiSaver schemes named in the report published by the FMA have moved to cut fees since the period to the end of March, which was covered by the FMA's annual KiwiSaver report.

KiwiSaver fees may need to be regulated, said Sam Stubbs, founder of the low-cost KiwiSaver scheme.

BNZ cut its KiwiSaver fees in May, and Kiwi Wealth cut its fees in April.

Instead of competition and economies of scale leading to fee cuts, KiwiSaver providers, including the big Australian banks which dominated the sector, collected combined fees of $479.8 million in the year to March 30 up from $418m the previous year, the FMA reported.

At the end of March KiwiSaver accounts held a combined $57b.

The average KiwiSaver paid fees, including fund management fees and administration fees, of $163.53, compared to $147.39 the previous year.

'No other household bill has gone up 13.5 per cent since last year,' the head of passive KiwiSaver scheme Simplicity Sam Stubbs said.

'It's crazy. At some point KiwiSaver fees will have to be regulated.'

Richard Klipin, chief executive of the Financial Services Council, which is an industry lobby group representing fund managers and insurers, said: 'We … acknowledge the clear message in the report about fee levels and the desire from the FMA for them to reduce.

'Fees are a work in progress but there is already considerable work going on across the industry to reduce fees and to deliver a greater range of fee structures and other product innovations to Kiwis.

'With the growth of the KiwiSaver market there is now real competition for consumers to choose from to ensure that they are getting value for money and that they are paying fees which reflect their needs.'