Call for KiwiSaver fees cut

A KiwiSaver watchdog has called for providers to lower their fees because of the early success of the retirement savings scheme.

Government Actuary David Benison, who is in charge of monitoring KiwiSaver schemes and their fees, told industry players at a superannuation funds conference that given the take-up for KiwiSaver was three times higher than originally expected there was now room for providers to review fees downwards.

Mr Benison said the Government had expected it to take until 2017 for the number of people signed up to exceed 855,000. But three years after its launch, 1.3 million had signed up.

"Fees need to begin to track down to recognise the success of the scheme which was not factored in at the outset," he said.

In the year to March 31, 2009, $36 million in fees was paid to providers at the equivalent of $36 per person for the year. Mr Benison estimated the most recent year to March would be more than double that at $80 million, an average of $62 per person.

KiwiSaver providers manage $5 billion of New Zealanders' money.

Until April last year the Government subsidised fees by putting $40 per person towards them per year but that was dropped by the National-led Government.

Mr Benison believes a reasonable fee for fund managers would be a $1 per month administration charge and a management fee of between 0.2 and 0.8 per cent of funds under management, depending on what the fund invests in.

For a person with $5000 invested in a low-risk cash fund that could mean an annual fee of $22.

But an industry body has said it is too soon for fees to begin falling.

"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.

Mr Arkinstall said investors had to bear in mind that when KiwiSaver was introduced it incurred huge set-up costs for the providers, which were amplified when last-minute changes were made in the 2007 budget, just months before the scheme went live.

Mr Arkinstall said a lot of members were contributing at a low level, or not at all in the case of children, and providers would not be making any money from managing their KiwiSaver accounts.

Retirement Commissioner Diana Crossan said it was difficult to compare fees at the moment because there was no standard way for providers to report them.

"When providers can fudge them and put them in different ways it's hard to compare," she said. "Fees need to be clearer and more straight forward."