13.5 per cent rise in KiwiSaver fund fees
The average KiwiSaver has seen the fund management fees they pay rise by 13.5 per cent in a year.
The Financial Markets Authority's (FMA)s annual report on KiwiSaver, published on Thursday shows KiwiSaver's had $57 billion invested at the end of March.
But instead of competition and economies of scale leading to fee cuts, KiwiSaver providers, including the big Australian banks which dominate the sector, collected combined fees of $479.8 million in the year to March 30 up from $418m the previous year.
The average KiwiSaver paid fees, including fund management fees and administration fees, of $163.53, compared to $147.39 the previous year.
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"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."
Most KiwiSaver fund fees were calculated as a percentage of the amount individuals had invested, said Stubbs, so the regular contributions people made to KiwiSaver each year guaranteed a perpetually rising fee haul for KiwiSaver managers.
The FMA planned to probe fees, including checking whether KiwiSaver managers were being clear with their savers on whether they were charging higher "active" fund management fees despite being largely passive investors.
The FMA also published a report commissioned from consultants Melville Jessup Weaver which showed savers in New Zealand were paying far too much in KiwiSaver fees compared to the amount paid by British savers.
Melville Jessup Weaver found KiwiSavers were paying weighted average fees for "active" fund management of 1.14 per cent of their annual balance, compared to 0.4 per cent in Britain.
For passive funds, KiwiSavers were paying a weighted average of 0.67 per cent, compared to the 0.29 per cent paid by British savers.
It wasn't only because the British pensions industry was so much larger than New Zealand's.
Melville Jessup Weaver said the total fees and expenses paid by savers in ANZ's KiwiSaver growth fund, which contained $2.96b, was 1.2 per cent of funds under management, compared to the 0.59 per cent cost of the Scottish Widows Newton Balanced fund in Britain, which contained £1.03b (NZ$2b).
"The analysis shows KiwiSaver fees appear higher than fees for the comparable UK market," the firm's researchers David Chamberlain and Ben Trollip said.
FMA director of regulation Liam Mason said: "We have previously said we were surprised costs per member had not fallen faster, given the growth in funds under management."
"It appears the benefits of scale, at least for the larger providers, are not being passed on to investors," Mason said.
"We will be asking KiwiSaver providers to demonstrate how they are providing value for money for members.
But there were signs that increased competition was having an effect with the introduction of some low, flat-fee structures being offered by new funds entering the market, he said.
"There are some signs of the effects of market forces and increased competition in the KiwiSaver sector. New entrants have built market share, some with low, flat-fee structures."
Stubbs said high KiwiSaver fees were eroding returns to savers.
KiwiSaver accounts earned returns from capital growth, interest and dividends of $3.8b, meaning fees consumed just over 12.5 per cent of investor returns.
"From the banks' point of view KiwiSaver is the highest quality profit you can imagine," Stubbs said. "KiwiSaver costs are largely fixed."
* Total assets grew by $8.4b to $57b, up 17 per cent.
* Investment returns were $3.8b.
* More people in low-risk "default" funds chose to move to a different fund.
* Default schemes' total assets fell to $4.4b, from $4.7b.
* The average member's balance was $19,426, up 13.4 per cent on the prior year.
* Withdrawals for those aged 65 and over were up 43 per cent to over $1b.
* KiwiSaver providers reported 199,307 scheme transfers during the year, up 5 per cent. This number does include people moving from a default fund to another fund in their scheme.