KiwiSaver

The managed funds analyst Trident Research has released rankings for the six default KiwiSaver balanced fund providers, based on the level of their management fees.
Press Release

Through its SmartKiwiSaver website ($30 annual subscription), Trident Research operates the only independent consumer-type education, signup, calculator and fund monitoring website for KiwiSaver, all accessible from one site.

In the balanced funds category, ASB charges the lowest annual management fees of $73, while sixth-placed Mercer Active Balanced is more than double, at $151.80.

“In percentage terms the differences in management fees might seem small, but as our website calculators show, they have a very significant effect on how much you will get at retirement time,” said the director of Trident Research Phil Harris.

Trident Research had developed the SmartKiwiSaver website to give employer and employee KiwiSavers affordable access to the same kind of funds performance analysis that was available to major fund managers and to the financial planning industry, said Harris.

“Employers in particular are getting really confused and the beauty of this kind of website is that you can suggest employees go there and know that they’ll get themselves sorted with a sign-up very quickly. They can also email questions to SmartKiwiSaver.

“Because there’s so little money in it, no one else seemed interested in providing this independent education and performance analysis website.

“But we think it’s important to educate intending KiwiSavers about the basics of risk and return and the importance of choosing a fund that has the lowest management fees and performs consistently in the upper quartile of returns for its category”, said Harris.

As a long-time independent observer of the funds management industry, Harris said he had been amused to see some KiwiSaver fund managers claiming to have the lowest management fees.

“For instance, I’m afraid Gareth Morgan and his fund members are in for a bit of shock when they find where his fund is placed in the management fees ranking of the 30 balanced funds so far registered with KiwiSaver,” said Harris.

Fees comparisons for a KiwiSaver account balance of $10,000 with just the six default providers – Balanced Funds category.

Scheme Fees paid annually % of balance Rank
ASB Balanced. $73 0.73 1
ING Balanced $121.50 1.22 2
TOWER Balanced $131 1.31 3
AMP Balanced $138.50 1.39 4
AXA Balanced $143.92 1.44 5
Mercer Active Balanced $151.80 1.52 6

The Labour Government is misleading small businesses over the benefits of KiwiSaver, says Nationals Associate Small Business spokesman, Chris Tremain.
Press Release – National Party

Small Business Minister Lianne Dalziel told the Small Business Expo this week that KiwiSaver would have a huge impact on New Zealand capital markets and they would benefit by easier access to finance.

The Minister has not done her homework if she actually believes this to be true.

The reality is that KiwiSaver schemes will largely invest in low-risk portfolios – mainly overseas in blue chip public entities or funds.

She knows very well that the Cullen Fund, for example, has a long-term goal of investing just 7.5% in New Zealand equities and only in blue chip stocks and funds. Very little, if any, of the funds are invested in high-risk private equity or small business.

Does she think KiwiSaver fund managers will be any less prudent?

What she also conveniently forgot to mention was that most small and medium businesses in New Zealand are sole traders, trusts or partnerships that did not receive the benefit of the Budget-announced corporate tax reduction and will therefore have to bear the full cost, after tax credits, of the KiwiSaver employer contribution.

For the Minister to claim that KiwiSaver will benefit small businesses is misleading at best and, at worst, a cruel joke.

The truth is KiwiSaver will not only fail to deliver easier access to finance for small businesses, but it will actually push up the cost of doing business for the majority.

The Government had the opportunity to force KiwiSaver providers to quantify all their fees and add-on charges so that the public could have some certainty about what they were letting themselves in for.
Press Release – Gareth Morgan

Too many providers have continued the old savings and insurance trick of identifying only fees and telling savers in the small print that expenses will be “charged to the scheme”. The average saver could be forgiven for thinking that since the scheme will pay these expenses the individual account fees will be confined to the headline numbers. Absolutely wrong; all fees and expenses eventually get paid by savers.

This duplicitous behaviour is compounded by the fact that a significant chunk of ordinary fees and expenses are not quantified – savers are left to guess what these might amount to and how they might affect their long-term returns.

And this is an industry whose spokesman Vance Arkinstall claims pursues best practice and is a fit ‘to be trusted’ guardian of the public’s savings. It’s an industry that for decades has pillaged the savings of a trusting public and lined its pockets at its customers’ expense.

We would certainly support any move by the Government Actuary to force schemes to quantify all their fees. Our independently verified fees comparator recognises the insidious practice of having non-quantified ordinary expenses. Our estimates of how much these add to total fees are pretty conservative (around 0.12%). For those schemes with very low headline fees the real figure could be 0.3% to 0.4%.

If ISI members seriously believe in best practice they should include all ordinary fees and expenses in their headline fee number so the public can be quite clear about what they are being charged – then we and the public wouldn’t have to estimate them. Gareth Morgan KiwiSaver and SmartKiwi KiwiSaver schemes appear to be the only ones, so far, that have a single all-up fee covering all ongoing fees and expenses.

No newspaper-published table has recognised the non-quantified element of ordinary fees – a dereliction of care which puts the public at an even greater information disadvantage.

Virtually all KiwiSaver schemes have some ability to raise fees to cover the possibility that new government regulations could force up scheme management costs. The KiwiSaver Act allows schemes to charge reasonable fees, or put another way, they are not allowed to charge unreasonable fees.

Now the Government Actuary has some duty to prevent schemes from charging unreasonable fees, but so far it has not published any guidelines for what he regards as reasonable. So, the public have no idea how far most schemes can increase their fees. One or two, including ourselves, have stated their maximum fees, which, since the Actuary has ticked them off, must be regarded as reasonable and therefore at least what other schemes can raise their fees to.

It’s time to remove uncertainty over fees. It has been a strategy used by the insurance and savings industry to dupe savers for far too long and the government could and should have put a stop to for Kiwisaver schemes.