How much of your KiwiSaver is being eaten up in fees? (Have you looked?)

by Virginia Larson / 12 March, 2018

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Are you apathetic about your retirement savings or hyper-vigilant? Photo / Getty Images

If there was a KiwiSaver attention tracker from 1 (abject apathy) to 7 (hyper-vigilance), there’d be a lot of us bunched at the apathy end.

In November last year, the Financial Markets Authority launched a nifty online tool called KiwiSaver Tracker. You can hover over coloured profit-returns bars, check your fund against others, and find out which ones have the most members. There’s a risk assessment for each fund from 1 (low) to 7 (high). Why 7? I don’t know. FMA wonks work in mysterious ways.

If there was a KiwiSaver attention tracker from 1 (abject apathy) to 7 (hyper-vigilance), there’d be a lot of us bunched at the apathy end: those who never got around to joining; those who missed getting the kids enrolled before the government scrapped the $1000 kickstart; and those who are years from retirement and still in some default conservative fund, consequently thousands of dollars worse off.

Of course, conventional wisdom suggests paying too much attention to your savings is also a road to frustration or rash decisions you later regret. The happy medium seems to be to start saving young, choose your fund wisely and stay the course.

That sounds dull, but there are interesting facts to be extracted from the KiwiSaver Tracker, including how much of your returns are gobbled up by fees. Maybe you thought you were paying only an annual membership fee of $30 – or that around 1.2% in management fees didn’t sound like much? What if you knew, as an average earner and saver, you could end up paying more than $60,000 in fees over your “KiwiSaver journey” – and that those fees might eclipse the amount you pay for a lifetime’s worth of electricity, for instance?

No wonder nearly all KiwiSaver managers have been busy burying their fees in fund-return statements, hoping you didn’t notice the fat profits they were earning for doing not much. That changes on March 31, however, when providers will be forced to disclose their fees in dollars and cents.

Then there’s not-for-profit Simplicity KiwiSaver, which launched in 2016 with former Tower investment head-turned finance industry disrupter Sam Stubbs at the helm. Its website opens up in eye-popping orange with the tagline: “Simplicity is the online, non-profit KiwiSaver plan that only charges members what it costs, nothing more.” Scroll down a bit and there’s a clock tracking total fees for all KiwiSaver schemes since January 1 this year. It’s currently zapping along at the rate of $1000 a minute.

Stubbs is not alone in criticising the big players for setting KiwiSaver fees at rates far higher than comparable schemes overseas. His response was to jump into the market with a flat fee of 0.3%, plus the $30 annual membership fee. He says Simplicity doesn’t claim to be doing anything magical with your savings, bar tapping into the diversification power of the giant (also non-profit) US-based investment group Vanguard.

Simplicity is not an “active managed” fund, but nor are most of the large default funds. And since the global financial crisis, it’s been revealed most “active managed” funds have done no better than lower-cost “passive” ones.

Stubbs is a man on an even bigger mission. Over coffee, he moves the vase, sugar bowl and water glasses around the table to illustrate how this historic injection of money – the combined KiwiSaver funds being invested domestically – is transforming the New Zealand economy from capital-starved to capital-rich. That means better buildings, transport networks and sewerage systems, and fewer appointments missed because you’re stuck in traffic congestion (as Stubbs was at Auckland Airport the morning of our meeting).

And, he adds, while KiwiSaver accounts slowly but surely become New Zealanders’ second biggest pool of money outside their house, why not expand on the scheme’s provision to allow members to use their savings for a first-home purchase and let funds like Simplicity lend to you direct? Without those bank fees, you’d pay less for your mortgage, investors would do nicely, and the only ticket-clipping would be for administration costs.

“Money is simple,” he says. “The finance industry wants you to believe it’s hard. That’s rubbish. In half an hour, I could tell you everything you need to know in life to get much richer.”

I tell him I have half an hour. Unfortunately, Stubbs is already cutting it fine for an appointment across town. There goes my globe-trotting retirement dream in a whirl of energy and a Hawaiian shirt. But, like 2.8 million other Kiwis, my savings pot keeps growing in a scheme Stubbs calls “arguably the best designed in the world”.

He just wants to make it better. 

This article first appeared in the April 2018 issue of North & South.
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