Fees matter because they reduce your KiwiSaver balance, meaning there is less of your money to invest and help you reach your financial goals.
This doesn’t mean high fees are bad. It’s great if you’re confident you’re getting good value for what you pay. Typically, this will mean getting satisfactory returns.
But you might also be prepared to pay more for great service, or for a provider who invests in line with your values.
We say, make sure you know what you’re paying in fees, and what you’re getting in return.
What fees do I pay?
You might come across these types of fees:
- A management fee which covers the provider’s running costs – such as paying staff and operating costs.
- A membership or administration fee which covers the cost of running your account – such as keeping your balance up-to-date, reporting and newsletters.
- Underlying fees, which cover what your KiwiSaver provider pays to other parties, for example other investment managers, involved in the investment process.
- Performance fees. Only a few KiwiSaver providers charge performance fees, which is when the provider takes a cut of the returns above a certain level of performance.
How much do I pay?
Unfortunately, which of the fees you’re paying and how much you pay can be hard to find out.
Many providers tell you the membership or administration fee you pay – somewhere around NZ$20 to NZ$30 a year.
But sometimes it’s not always easy to find out how much you’re paying in other fees. You might have to go through with a pen and add up many individual fee amounts. This can be so confusing that you might give up.
When you read your KiwiSaver statements, pay special attention to the management fee, because it will be the largest one, up to nearly 2 per cent of your balance every year.
Also check your performance fee, if you’re charged one.
Percentages, for example 1 per cent, can look and sound small. But as your balance grows, those percentages can turn into increasingly large sums of money – all coming out of your balance, every year, regardless of how well your fund performs.
What’s being done about making fees transparent?
Earlier this year, the government made it compulsory for KiwiSaver providers to show how much in fees you’re paying, in a dollar amount, on your annual statement.
This move aims to boost transparency around fees, and to get you thinking about whether paying that much interferes with you reaching your financial goals, and whether you should change fund or provider.
The Financial Markets Authority says all providers should be able to explain and justify their fees to their members.
Published November 2018
Story by Paul Gregory, Pie Funds
Paul Gregory is the Chief Operating Officer at Pie Funds Management Limited. Pie Funds Management Limited is the issuer of the JUNO KiwiSaver Scheme. You can read our Product Disclosure Statement here. This article is general in nature only and has not taken into account any particular person’s objectives or circumstances. We recommend you speak with a financial adviser. All content is correct at time of publication date.