NEWS

It’s a fact: KiwiSaver fees in NZ are low

New research shows that KiwiSaver fees in New Zealand are lower than fees on similar funds in other countries.

KiwiSaver provider Generate commissioned Deloitte Consulting Australia to compare fees KiwiSaver fees to similar funds in Australia and the United Kingdom.

It found that KiwiSaver fees are on average lower than fees charged on similar funds in Australia and KiwiSaver default fees are on average lower than the fees for default products in both Australia and the UK.

“It’s good news for KiwiSaver members that the fees they pay have been found to be globally competitive,” Generate chief executive Henry Tongue said.

He says KiwiSaver members can have confidence that the fees charged by managers are reasonable by international standards.

“The fact our fees are lower than Australia is quite phenomenal.”

The report compared fees on default funds in each country and also fees on non-default funds which Deloitte called “choice”.

More advice is the key outcome to customers, now.

As could be expected there was a wider range of fees on Choice funds due to varying asset allocations, management style and relative scale.

Deloitte concluded; “fees charged to members of KiwiSaver default products are on average lower than fees charged to members in similar default funds in Australia and in the UK.”

2%

1.80%

1.60%

1.40%

1.20%

1%

0.80%

0.60%

0.40%

0.20%

0%

Total Default and Choice Fees p.a. By System - $50,000 Balance

Source: Deloitte. This graph compares fees for default schemes in NZ, Australia and the UK for balances of $50,000. The coloured bars are the second and third quartiles. A graph for $30,000 balances is further down the page.

Default New Zealand (KiwiSaver)

Choice New Zealand (KiwiSaver) Default Australia Choice Australia Default United Kingdom Choice United Kingdom

There are some common myths that KiwiSaver fees are higher than fees in Australia and this report demonstrates that is not true, he says.

Tongue says a single-minded focus on lowering fees will not do KiwiSaver members any good.

“The pursuit of ever-lower fees also leads to more low-cost, vanilla KiwiSaver products, which ultimately reduces consumer choice of active KiwiSaver funds and has implications for the longterm health of the New Zealand economy and capital markets,” he says.

The research is also remarkable given the relatively small scale of the KiwiSaver market which sits at $90 billion versus the Australian superannuation system which is more than $3,100 billion and the UK system at more than $5,000 billion. "This shows KiwiSaver fees to be highly competitive in relation to their much larger scale Australian and UK peers."

Tongue says it is time to focus the KiwiSaver discussion onto issues which will make a bigger impact on KiwiSaver members including fund selection and contribution rates.

“A single-minded focus on fees, especially when these are already highly competitive when compared to other markets, crowds-out the critical need to also focus members attention on fund selection and contribution levels. We should be encouraging members to seek advice, think about fund choice and contribution rates, and encouraging more financial advisers to provide advice on KiwiSaver.

“More advice is the key outcome to customers, now.”

Other research by the Financial Services Council shows the majority of respondents contribute only 3%4% into their KiwiSaver, while 74% of respondents think that Kiwis should be contributing a bigger percentage of their earnings.

In addition, 80% of respondents considered that they were getting value for the fees they paid.

HOW THE RESEARCH WAS DONE

The methodology used for this research was to focus on the total fees charged to members with account balances of $30,000 (the current average KiwiSaver account balance) and $50,000 (a potential future state average account balance) across a representative peer group of funds from each system.

Barry Coates

More responsible investing rules needed

Mindful Money boss calls for FMA to create responsible investing standards.

BY JENNI MCMANUS

Mindful Money, a charity that promotes ethical investment, now has a second awards season under its belt.

Chief executive Barry Coates says feedback from the financial services sector after the inaugural awards was “fantastic” and an extra category was added this year – the best ethical overseas fund, aimed primarily at products being actively marketed to New Zealand advisers.

The awards were set up to recognise and celebrate best practice, Coates says. “They honour the funds and the individuals who are leading the movement to make responsible investing the new norm and impact investing the progressive frontier.

“We saw a lot of activity in ethical and responsible investing and impact investing, but we didn’t see a lot of opportunities to highlight best practice.

“We were also trying to overcome some of the lack of regulatory standards around ethical investing and say, ‘what does good look like’?”

This lack of standards has long been an issue for Coates. While the Financial Markets Authority (FMA) warned recently it was turning up the heat on ‘ethical’ and ‘responsible’ funds – aimed specifically at KiwiSaver and other managed funds that are ignoring ESG investment guidance published by the regulator in December 2020 – the FMA has made it clear it does not want to be a standard-setter.

The guidance does, however, provide a framework the FMA expects managers to use to substantiate on reasonable grounds the claims they are making about the credentials of their funds. It warns it will crack down on managers who claim their products are ethical and sustainable but fail to back up those assertions by clearly explaining to investors how and why there are made.

Not good enough, Coates says. In his view, the FMA should be setting and enforcing mandatory standards for ethical investing in the same way that the External Reporting Board (XRB) is doing for climate change. This would enable a clear comparison to be made between funds. The XRB is expected to turn its attention to sustainability standards once its climate change project is completed but it’s understood these standards will be only voluntary.

Coates thinks this is a mistake. These standards should be compulsory, he says, as the audience for financial information is potential investors who are not necessarily experts.

In addition to its awards, Mindful Money did a survey on ethical earlier this year in association with the RIAA (Responsible Investment Association of Australasia).

This found that despite concerns about greenwashing, nearly three-quarters of respondents (73%) wanted their funds to be invested responsibly and ethically, and 56% said they would consider switching KiwiSaver funds if they discovered their fund was investing in companies that were not consistent with their values.

The survey also points to what Mindful Money calls a “crucial” link between ethical investment and savings. If people knew their savings would make a positive difference, 53% said they would be motivated to save more.

About two-thirds of those who do not already have an ethical or responsible fund said they are looking to invest in such a fund in the future. Demand is particularly strong among women (80%) and younger generations (71%) compared with only 63% of men.

The researchers say this support comes from a range of income groups, including those on low incomes and with low KiwiSaver balances. “Investing ethically is an issue for all, not just those with high levels of discretionary investment.”

For many of those surveyed, it appears investors are not simply looking for funds that do well but investments that also do good. For 62%, it is important that their investments make a positive difference in the world. A