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Will admin fees whittle away KiwiSaver?

 
Q         I have a daughter in her 40’s who has an intellectual disability.   Last year she started a job where she worked 6 hours a week.   She was enrolled in KiwiSaver when she first started working.   Unfortunately the job was terminated a few weeks ago as the subsidy which was funding it dried up.   She has $1054.48 in her Kiwi Saver at this time.   I have contacted the provider and they inform me that if she makes no more payments $4.00 will be deducted each month and I guess the $1054.48 will eventually be whittled away.   As she is in IHC care her income each week is $60.00 and this covers her personal toiletries, clothing, entertainment gifts etc.   Am I able to withdraw her from KiwiSaver or should we try to pay $20 a month to keep the account open?   I think it unlikely she would find regular employment. 
           
A.         Most of the balance in your daughter’s KiwiSaver account is made up of the ‘kick start’ from the Government which cannot be withdrawn until the age of 65. That rules out your first suggestion of withdrawing her from KiwiSaver. 
 
Paying $20 a month into her account ($240 per year) is worth considering if you (or she) can afford it, as the Government will top this up by around $120 in Member Tax Credits each year, under current rules. 
 
Even with these top ups if she is not working her KiwiSaver balance will grow slowly, so you could look for a KiwiSaver scheme which has a lower administration fee. Most if not all KiwiSaver fund managers charge a monthly admin fee of $2 - $4 whether you are making regular contributions or not. Because it is a flat fee it can have a big impact on accounts like your daughter’s with a low balance. As you may have worked out, $4 a month is $48 per year or 4.6% of her current account balance. That is a lot to be giving away in fees especially if she is in a conservative fund which may only achieve a net return in the 3-5% per annum range. I would hope that the balance would not be completely ‘whittled away’ as you fear, but it may not make much headway. 
You can shop around for a fund manager with lower admin fees. Morningstar puts out a quarterly report which provides information on returns as well as fees. Or get advice from an authorised financial adviser.
 
If you do decide to make changes to your daughter’s KiwiSaver, I expect you will be doing this on her behalf with an authority granted by the Family Court. You will find a few additional hurdles in your path because the Anti Money Laundering and Countering Financing of Terrorism Act 2009 came into force on 30 June 2013. 
 
What does this mean for you? From now on all new or switching KiwiSaver investors will need to provide up to two forms of ID, along with evidence of residential address. If your daughter does not have a drivers licence you can use an 18+ card plus her full birth certificate. You will need to supply the official evidence of your authority to act on her behalf as well as one or two forms of ID for yourself and evidence of your residential address (e.g. bank statement or utility bill). 
 
The new legislation is partly aimed at increasing confidence in the financial system and improving our international status but it’s likely to cause a few headaches along the way.
 
 
Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 870 3838. The information contained in this article is of a general nature and is not intended to provide personalised advice. Send you KiwiSaver questions to shelley.hanna@peak.net.nz. You can read earlier columns at www.peak.net.nz