KiwiSaver fees and returns worry Treasury

Treasury is worried about the concentration of bank's providing KiwiSaver funds.

KiwiSaver fees remain high, the returns are mixed and an increasing concentration of bank-run schemes are a concern for the competitiveness of the market, a report carried out by Treasury has found.

The Government department has released a review on KiwiSaver fund manager market dynamics and allocation of assets.

It predicts the value of KiwiSaver assets will grow to $70 billion within five years - more than double the $28 billion which research firm Morningstar valued the industry at as of June 30.

KiwiSaver now makes up a growing share of household financial assets in New Zealand but Treasury has a number of concerns.

"Overall, the market appears to be competitive, however, with a growing level of concentration."

While Treasury was not concerned about concentration itself it warned that the growing significance of large banks could result in consumers getting a raw deal when it comes to fees.

"Concentration per se is not concerning as economies of scale exist in funds management which should, in theory, lead to cost reductions and efficiency gains.

"Financial capability of KiwiSaver members will be critical to ensuring the benefits of such economies of scale are captured by consumers.

"Certain trends, such as a growing significance of large banks, could detract from this and should be monitored to ensure that contestability in the market exists."

ANZ and ASB bank are the two largest KiwiSaver players in the market and between them manage around 44 per cent of the total asset pool.

Treasury found current fee levels were in the upper third for KiwiSaver compared to other similar countries and were "well above" the extremely low fees available in some markets.

Certain trends, such as a growing significance of large banks, could detract from this and should be monitored to ensure that contestability in the market exists.

Treasury report

It was also critical of how KiwiSaver funds have performed.

"In aggregate, the returns to members have not outperformed benchmarks chosen by us and are mixed compared to the investment performance of the Crown financial institutions."

It warned that KiwiSaver's weighting towards income assets rather than growth assets could lead to "less than optimal future retirement incomes."

Read the full report here: