KiwiSaver: What the fund fees are costing you

Fund providers receive the equivalent of $36 for every KiwiSaver client every year. Photo / The Aucklander

New Zealanders saving for their retirement through a KiwiSaver fund could pay more than $60,000 in fees over their working life.

A higher-than-expected uptake has given fund providers $36 million in the year to March 2009 - the equivalent of $36 for every KiwiSaver client.

That total is tipped to have climbed to $62 for every person in the scheme.

And those just entering the workforce will pay the most. Based on fortnightly payments with 2 per cent employer contribution, a 25-year-old graduate on $35,000 could expect to retire at 65 with a little over $500,000. Investing in a low-risk scheme such as an ASB cash fund, the graduate could expect to pay about $12,000 over his or her working life.

But investment in a high-risk venture such as ASB's Global Sustainability Fund would incur fees of more than $77,000 over 45 years.

A more conservative worker starting KiwiSaver at 35 and earning $50,000 a year would retire with about $300,000. But they could pay fund management fees - depending on the level of risk involved - equivalent to a year's income over the 30 years to retirement.

And the news gets worse the older the KiwiSaver newcomer.

A 50-year-old coming to the scheme on $70,000 and a 2 per cent employer contribution would earn about $105,000 by 65, and could pay as little as $2700 in fees over the 15 years.

But riskier funds could cost the client up to $10,000 to administer.

Investment in a high-risk Asteron International Share Fund would ultimately absorb $13,540 in various fees.

The KiwiSaver watchdog, Government Actuary David Benison, this week said providers should look to reduce their fees, because of the higher-than-expected KiwiSaver uptake. He told a superannuation funds conference more than 1.3 million people had joined KiwiSaver, well ahead of early predictions of 855,000 by 2017. But an industry body has said it is too soon for fees to come down.

"We understand where he is coming from, but he is a bit premature," said Vance Arkinstall, chief executive of the Investment Savings and Insurance Association. He said KiwiSaver had incurred hefty start-up costs, which had yet to be recovered.