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4.3 Conduct in the KiwiSaver Fund Management Market

4.3.1  KiwiSaver fees

In the following we review the type and degree of KiwiSaver fees using fund manager quarterly statements disclosed to the FMA and also Morningstar data,how these have developed over time, the determinants of fees from a statistical analysis, and finally how they compare internationally. The level of fees charged to investors in direct contribution mutual and retirement saving funds has a drastic effect on ultimate returns and therefore retirement income outcomes.[50]

KiwiSaver providers automatically deduct their fees from an individual's KiwiSaver account balance for management and administration. Fees are charged on more than just the costs of providing the investment return (so-called management fees). Administration fees relate to trustee and custodian costs and legal costs. Management fee levels vary depending on the provider, fund risk level and asset classes and the account balance of the member. There is also no universal definition of all the different fees charged by different providers - many use different names for fees which results in fee levels being generally opaque.

Total fees in dollar terms have risen over the period. Total fees as a percentage of total assets have fallen from around 2.2% of total assets in 2009 to 1.95% in 2014. This is consistent with economies of scale and some competition leading to lower input costs and lower fees.

Figure 21: Total KiwiSaver fees over time 2008-14
Figure 21: Total KiwiSaver fees over time 2008-14.
Source: Financial Markets Authority

Broadly speaking KiwiSaver management fees can be separated into two types:

  • Fixed fees: the membership fees that do not vary based on the fund balance or performance, usually assessed as a fixed dollar amount per annum.
  • Variable fees: the fees that are applied as a percentage of funds under management, including management and performance fees.

Fixed Fees per Asset Class

Fixed fees have remained fairly constant over the three years to 2013, increasing slightly in nominal terms. Fixed fees for conservative funds have grown the most over the three year period analysed, increasing by just under 14% in three years to $34 p.a. Aggressive funds have marginally had the highest fixed fees over the period, but overall the variation of fixed fees across time and asset classes has not be substantial. Interestingly, the fixed fees for the cash asset class are higher than the conservative and moderate class consistently through the time period examined.

Figure 22: KiwiSaver annual fixed fees per asset class, 2010-14
Figure 22: KiwiSaver annual fixed fees per asset class, 2010-14.
Source: Morningstar

Notes

  • [50]Recent evidence from the U.S. reinforces this. Ayres and Curtis (2014) reviewed over 3,500 U.S. 401(k) retirement funds with more than US$120 billion in assets and found that fees were high enough to wipe out any tax benefit of the plans and on average members paid a 100 basis points (1%) more in fees that retail index funds available to all investors.
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