KEY POINTS:
KiwiSaver critic - and provider - Gareth Morgan said the Government is missing out on a chance to force fund providers to reveal all on fees and expenses.
Dr Morgan, of Gareth Morgan KiwiSaver, said in a statement that too many providers continue the old savings and insurance trick of identifying only fees and telling savers in small print that expenses will be "charged to the scheme".
These typically include such things as annual reports, audits, posting and printing charges that eventually come from savers' funds.
Dr Morgan, who is against the KiwiSaver concept despite being a provider, said the average saver could be forgiven for thinking that since the scheme would pay these expenses the individual account fees would be confined to the headline numbers.
"Absolutely wrong; all fees and expenses eventually get paid by savers," said Dr Morgan, who is currently on a two-month motorbike trek through Africa.
"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.
"It's an industry that for decades has pillaged the savings of a trusting public and lined its pockets at its customers' expense."
The Government pays a $40 a year subsidy to fund managers for every person enrolled in KiwiSaver. Dr Morgan's "conservative" estimate showed other expenses add 0.12 per cent on average and, for those schemes with very low headline fees, the real figure could be 0.3 to 0.4 per cent.
Fellow director Andrew Gawith told NZPA the less transparent the scheme, the more providers rely on reputation.
New Zealand had insisted on transparency in the banking industry where banks have to reveal the full cost of the finance rate.
"Why on earth that hasn't been a requirement for KiwiSaver? I don't know."
Dr Morgan said the Government Actuary should force schemes to quantify all fees.
All members of the Insurance and Savings Industry should include all ordinary fees and expenses in their headline fee number so the public could be quite clear about what is being charged.
He said it appeared only his scheme and the SmartKiwi KiwiSaver schemes so far had a single all-up fee.
Newspaper tables had failed to recognise the non-quantified element of fees, he said.
Virtually all KiwiSaver schemes had some ability to raise fees to cover the possibility that new government regulations could force up scheme management costs, Dr Morgan said.
He noted the Government Actuary had some duty to prevent schemes from charging unreasonable fees but so far it had not published any guidelines for what he regards as reasonable.
"So, the public have no idea how far most schemes can increase their fees."
Mr Gawith said an issue that would come up later would be fund providers charging members the same percentage fees whether the investor had a large sum or a small one. It virtually cost the same to service both but the one with the large sum invested would pay, say, $1000 a year and the small investor $100.
"I think it's going to be a future issue."
- NZPA
