KiwiSaver annual membership fees 'should be reduced or eliminated'

Wednesday, 14 April 2021

The Financial Markets Authority has told KiwiSaver providers that annual ‘membership’ fees should be reduced, or eliminated.

KiwiSaver membership fees are no longer needed, and should be reduced, or eliminated entirely, the Financial Markets Authority says.

The FMA released guidance to KiwiSaver providers on Wednesday telling them they should produce annual review reports for their savers to justify their fees, and show they are providing “value for money”.

But in an accompanying document, the FMA dropped a bombshell telling KiwiSaver providers that the time for membership fees had passed.

“Membership fees were intended to cover costs when scale was low,” the FMA said.

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“As scale and member balances increase, we see little justification for schemes to charge both a fixed membership fee and a base management fee, which is typically percentage-based.”

At the end of December, KiwiSaver schemes held investments worth more than $76 billion for their members, figures from fund research company Morningstar showed.

KiwiSaver membership fees vary between provider, but the last FMA KiwiSaver annual report showed KiwiSavers paid just under $85 million in membership fees in the 12 months to the end of March 2020.

“We expect to see KiwiSaver schemes move towards eliminating membership fees from their fee structures,” the FMA said.

The FMA said, where membership fees were charged, they had a disproportionate effect on savers with smaller balances.

The pressure from the regulator for KiwiSaver schemes to cut fees was welcomed by AUT finance lecturer Ayesha Scott.

“In principle, I agree. Fees should be lower, and taking away the fixed membership fees would be a way to lower fees overall,” she said.

KiwiSavers faced higher charges for their super savings than savers in other countries like the United Kingdom, she said.

“I think the FMA is really trying to emphasize that fees are still a problem.”

Jacqueline Taylor and Mike Taylor, founders of the Juno KiwiSaver scheme.

Membership fees at large KiwiSaver schemes varied widely.

BNZ charges no annual fee, relying only on percentage-based fund fees.

By contrast ASB KiwiSaver members pay a $30-a-year “administration” fee, and Westpac KiwiSavers pay a $12 annual charge. KiwiSavers with both ASB and Westpac also pay percentage-based fund fees, which also vary between KiwiSaver providers.

Mike Taylor, chief executive of Juno KiwiSaver, said: “Clearly the FMA is looking to larger providers to reduce fees and the most obvious way to do this is to remove the annual member charge.”

Taylor said KiwiSaver providers were too often making it hard for their savers to understand how much they were paying by charging multiple layers of fees, instead of adopting a simple, transparent fee structure.

Juno opted for a “subscription-fee” style model in which it only charged an annual fee, not the percentage-based fees that other KiwiSaver schemes charged, Taylor said.

“Juno charges one low fixed fee, which is an ‘all-in’ fee, and it’s a dollar fee, easy to understand. So our model is very unique,” Taylor said.

“I think it’s time that we saw more transparency on fees, because consumers still don’t know how much they are being charged. Many providers charge multiple fees, some of which are hidden,” he said.

Some KiwiSaver providers told the FMA the membership fees helped pay for advice.

But KiwiSaver provider Consilium told the regulator: “For the hundreds of thousands of scheme members currently holding low balances, we believe many of these fixed monthly membership fees are already unreasonable.”

Where advice was sought by a saver, they should be billed for their advice individually, Consilium said.

Most of the large KiwiSaver managers gave their feedback to the FMA on fees through the Financial Services Council, a political lobbying group for fund managers and insurers.

It said the FMA should “clarify” that it was not seeking to prohibit or restrict any type of fee model, and that KiwiSaver providers should be able to cover their costs for members with low balances.

The New Zealand Shareholders’ Association agreed with the FMA.

“Membership fees should not be charged. For KiwiSaver, there should only be one fee based on a percentage of funds under management. Funds are now of a size where membership fees cannot be justified,” it said.