AUT Professor, Bart Frijns, talks about KiwiSaver fees.
KiwiSaver members paid out $325.9 million in fees to their providers last year - an average of $125 for every man, woman and child signed up to the retirement savings scheme.
Figures from annual scheme accounts show New Zealand's largest KiwiSaver provider, ANZ Bank, raked in $85.9m in the year to March 31, 2016 - more than double the amount of its nearest rival, ASB bank, which took in just over $40m.
KiwiSaver fees have leaped from $4.7m paid in the first nine months to March 2008 to a figure likely to be over $370m in the year to March 2017.
Collectively New Zealanders are likely to have paid out more than $1.6b to providers since the scheme was launched in July 2007.
KiwiSaver was designed to be a low-cost savings scheme but a Treasury report released in 2015 found its fees were in the upper third of those paid in comparable countries in the OECD.
It found KiwiSaver fees had come down as a percentage of total assets, falling from 2.2 per cent in 2009 to 1.95 per cent in 2014.
But the dollar value has continued to climb as funds under management have grown because savers are charged a percentage of their account balance.
KiwiSaver consumer advocate Alec Waugh of Kaspanz (KiwiSaver, Annuities, Superannuation, Protection Association of New Zealand) says historically KiwiSaver fees have been too high compared with other OECD countries.
"We think provider fees are too high and should be coming down."
Bart Frijns, a finance professor at AUT, agrees.
"I do think there are economies of scale that could potentially be passed on."
AUT professor Bart Frijns talks to the Business Herald about KiwiSaver fees. Photo / Dean Purcell
Liam Mason, director of regulation at the Financial Markets Authority (FMA), whose job it is to ensure KiwiSaver fees are fair and reasonable, said the regulator was comfortable that KiwiSaver fees were not unreasonable.
"What we do see is a huge range - even within the default, conservative range."
Mason said a sign of a competitive market was when prices tightened.
But at the moment consumer awareness of pricing is low and people are not switching to get a better deal.
From next year all providers will have to give members a personalised dollar figure for fees in their annual statement.
While providers have made it easy for members to see their annual membership charge, most don't break out the dollar figure for other charges including the management fee which can be a much higher dollar amount depending on the balance.
Mason said dollar figures were more meaningful than percentages and people tended to engage more with annual statements because they were personalised.
"If I tell you a fee is 1 per cent it doesn't mean much. But if I say the cost of your KiwiSaver is more than the cost of your phone bill ..."
The dollar figure will be mandatory, however providers will not have to include percentage figures for funds under management in the annual statement, although Mason said the FMA hoped providers would furnish both.
New Zealand Shareholders Association chairman John Hawkins said the dollar figure on its own created the potential for misleading outcomes if people used the figure to compare what they were paying to others.
It wants the FMA to make it mandatory for providers to show both the dollar figure and the percentage figure.
"Having just a dollar figure is why people pay high interest rates on credit cards and loans without realising it."
Hawkins said consumers were used to dealing with dollar amounts and percentages when shopping around and pointed to mortgage rates where people look at both the interest rate and how much they be will paying on a regular basis to see if it is affordable.
Mason admits the dollar figures could be taken out of context but says it doesn't change the aim of making Kiwis more price conscious when it comes to their retirement savings.
"Really what we are aiming for is price-conscious KiwiSaver members," he said. "We really want people to feel the money coming out of their pockets."
At the moment people were switching KiwiSaver providers based on convenience, Mason said.
"What we are not seeing is people switching based on cost."
Research by Frijns in 2014 found on a retirement savings pot of $500,000 almost $100,000 in fees could be paid out to a provider over the lifetime of that scheme.
That money could make a big difference to people in retirement.
Richard Klipin, chief executive of the Financial Services Council, whose members include the country's largest KiwiSaver providers, also said: "Clarity of fees in and of itself is good. But it may not lead to a whole lot of change."
Klipin said advice on KiwiSaver was key to getting people to engage on fees.
"I think the challenges and clearly the opportunity is for KiwiSaver providers to develop a raft of tools to engage members more and more. At 10 years on there are plenty of opportunities to do more."
What the providers say
Ana-Marie Lockyer, general manager wealth products at ANZ, said KiwiSaver was still in its infancy compared with many overseas schemes.
"The benefits of scale are still to come, although members are already benefiting from scale savings being passed through to them from providers."
ANZ said it had reduced its annual fund fees by 20 per cent since 2009 and more cuts are likely.
As the largest KiwiSaver provider with about 25 per cent of the total market it has the highest fee take in dollar terms.
Lockyer said the bank was fully supportive of the FMA wanting fees to be shown in a dollar form but she also warned that looking at fees in isolation was dangerous for investors.
"We believe the most important thing for KiwiSaver members to consider is the return on their investment after fees."
Bruce McLachlan, chief executive Fisher Funds. Photo / Jason Oxenham
Bruce McLachlan, chief executive of Fisher Funds, said a broad-brush statement saying KiwiSaver fees were too high was simplistic.
"There are major differences across the competitive market and it ignores the value that is provided, advice and support given and the after-fee returns that KiwiSaver members get from materially different investment strategies," McLachlan said.
Fees should be a long way down the list in order of importance when it came to choosing a KiwiSaver provider, he said.
"The most critical thing for New Zealanders is to ensure they are getting value for their fees which means getting the support they need, and after-fee returns they need to live the retirement lifestyle they want."
The New Zealand KiwiSaver industry was still in its infancy and tiny when making global comparisons, McLachlan said.
"Many providers are still recouping the upfront investment required to establish KiwiSaver in the first place."
He urged that fees be looked at in perspective and said people should be asking whether they were in the right fund, getting appropriate returns and advice.
"Those will ultimately have way more impact on whether people have a comfortable retirement."
Blair Vernon, chief executive of AMP Financial Services, said that while there were 2.75m people in KiwiSaver, 45 per cent of members put nothing in last year.
"You've got providers doing a whole bunch of stuff for members with static accounts."
Vernon said international fee comparisons were often based on members who had an average balance of $100,000 whereas the average balance here was only about $15,000. Yet providers were running a full-scale retirement savings scheme.
"Yes, when you look at an aggregate level fees seem high."
The alternative was a no-frills airline model of no bag, no meal.
"Ours is a full-service model. Our fees allow our advisers to deliver that advice."
Vernon said AMP Financial Services did not believe in a do-it-yourself approach because past evidence had shown that was not very successful.
Joe Bishop, Kiwi Wealth general manager of customer, product and innovation, said with funds now achieving scale, fees were something the industry needed to address by better balancing fiduciary responsibility, service, best practice and investment outcomes.
"Fees are important but they aren't the only thing that matters. We're not a passive set-and-forget investor, we actively look for the best investment return opportunities for our members," Bishop said.
"We are straight up with our members. We always show investment returns after all fees and costs have been deducted - in other words an 'in-your-hand return'- so members can judge performance on the value we have added to their investments."
ASB general manager wealth Jonathan Beale said its scheme offered the second-lowest fees in the market and it believed cost was an important factor with managing money.
"We believe focus on fees will become more important as KiwiSaver balances rise and people understand more about their investment."
A Westpac spokesman said fees overall had been decreasing, "perhaps not as fast as everyone might wish, but decreasing nevertheless".
"The rate of change is influenced by a number of factors, some that affect all providers and others that are scheme-specific," he said.
"Fees vary depending on the type of fund that members are invested in, as well as the management style and other services provided. Ultimately, what matters most is net returns, rather than simply cost."
