MR No. 2018 – 09
27 March 2018
KiwiSaver customers are about to see the fees they pay their fund managers in dollar figures for the first time, and could be in for a shock.
But experts advise against bolting to a different provider with lower fees, or switching funds, unless you’ve done your research.
The change to dollar figures is a result of work by the Commission for Financial Capability (CFFC), the Ministry of Business, Innovation and Employment and the Financial Markets Authority (FMA) to improve the transparency of reporting for KiwiSaver members. This led to a recommendation to government by the CFFC as part of its Review of Retirement Income Policy in 2016.
The requirement comes into effect from April 1, and consumers will see the dollar figure on the next statement they receive sometime in the next two months.
For example, if a customer has a balance of $10,000 in their KiwiSaver account, until now they might have seen the fund manager’s fee expressed as 1.28%. That will now be spelled out as $128 per year. According to the KiwiSaver Fund Finder tool on the Sorted website, total fees on $10,000 in a balanced fund range from $52 to $174 per year.
Liam Mason, Director of Regulation at the FMA, points out that this is due to the variation between KiwiSaver providers’ fees. “We hope people pay attention to their statements this year when they find out what they are paying. This should be a good prompt to find out more about your KiwiSaver fund and to use the tools available and check what you are paying for.
“The difference in fees may be due to the type of fund you are in – conservative funds tend to have lower fees than growth or aggressive funds – or it may be due to the fund manager providing a different range of services.”
The FMA’s KiwiSaver Tracker tool shows the percentage chunk that fees take out of your returns.
CFFC’s Education Group Manager, David Boyle, cautions against changing funds or providers solely because of on their fee level. The KiwiSaver Fund Finder tool enables members to compare like for like by way of fund type, returns after fees and the range of services fund managers provide, which may include advice.
“Some fund managers charge more, but you get a better return overall,” says Boyle. “After using our online tools, the most important factor to take into account is the total return after fees.”
Boyle says that when customers received their next statement it was a good time to review their KiwiSaver position:
• Check that you are contributing regularly.
• Make sure you’re in the right fund for your stage in life and comfort with risk – your long-term returns depend largely on where your funds are invested.
• If eligible, make sure you’re getting the member tax credit (MTC) of upto $521 a year from goverment, and check your PIR tax rate to make sure you’re not paying too much tax.
Both the CFFC and the FMA suggest customers concerned with how much they are paying in fees contact their provider and ask what services they are receiving, and how their money is being managed.
Media Manager, FMA
Ph: 021 220 6770
Estelle Sarney, Media Liaison, CFFC
Ph 021 246 4302