‘Fees’ is the word on everyone’s lips when it comes to KiwiSaver. There’s been a lot of discussion in the news and on the street around fees, but what’s it all about?
Contrary to popular belief, investing decisions should not be driven solely by finding the lowest fee option. Low fees do not necessarily mean that a fund will produce better returns in the future, but higher fees also need to be justified. It’s also important to keep in mind that providers have different fee structures in place that may change at any time.
The key here is finding KiwiSaver funds that offer the best value for the lowest fees. We’re here to clear the air when it comes to KiwiSaver fees so you know what to look for - and what to avoid.
What are the different types of fees?
Administrative fee - a fixed rate that generally ranges from $0 to $49.80 per year
It may not sound like an amount that you need to worry about, but if you’re just starting out, pay attention. Say you have $3000 in your KiwiSaver, and your return is $150. Subtracting $60 from that return as an admin fee hurts a bit. However, if you’re later on down the track and have $100k saved up, your return might be more like $5,000 and that $60 is much less significant.
Management fee - a percentage of your account balance, generally 0.31%-3.23%
Your provider is an expert on investments, and this is how you pay for their expertise. This fee will vary from provider to provider, and can vary depending on the type of fund you are in. A conservative, lower-risk fund often requires less management than a higher risk growth fund, so it makes sense that the fees would be lower. On the flip side expect higher fees from a higher-risk fund (growth or aggressive).
Performance fee - a percentage of your account balance
This is when your provider gets a little extra for overseeing a fund that performs above the expected threshold. Not all providers charge performance fees.Conservative funds generally don’t have performance fees, and growth funds tend to have larger performance fees.
Not all providers offer the same services
One reason provider fees differ is the services they offer. Will they review your fund regularly to make sure you’re in the best one for you? Will they check in to see if your circumstances or risk level have changed? Do they manage the funds themselves or outsource it? How often will they report to you?
Some providers will offer you advice on how to save for a first home, how to set yourself up for retirement, and provide you with general education. Others may not. Ask your provider what services they offer and make sure you are satisfied with what you’re getting.
What to watch out for
Some marketing methods make the fees appear less than they are by advertising an attractive percentage fee without including the admin fee.
For example, let’s say you have $20,000 in your KiwiSaver and your provider advertises an annual fee of 0.31%. This doesn’t include the admin fee. So if your admin fee is $20, that pushes your percentage rate to 0.41%. And if it’s $36, it’s 0.49%. Suddenly 0.31% isn’t actually reflective of what you’re paying.
How to assess KiwiSaver fees
Generally returns figures that are published are after your fees have been subtracted. But it’s still important to pay attention to what you’re being charged and if you are taking advantage of all the services available to you for your fees.
If you are already a KiwiSaver member, start by looking at the Product Disclosure Statement (PDS) provided to you when you signed up. It should also be on your provider’s website. If you want to switch from your current provider or are new to KiwiSaver and looking for a provider, BetterSaver can provide fee-related advice specific to your situation to make sure you get in the right fund for you, plus in most cases provide ongoing advice at no additional cost above your existing fund’s fees to maximise your value for money.
Optimising your KiwiSaver is one of the simplest things you can do to maximise your returns and ensure you’re getting value for your hard-earned savings - in other words, make your money work harder for you.
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