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Should the Government run KiwiSaver?

Q.        Why doesn’t the Government run KiwiSaver – like it does the Cullen fund? There would be huge savings on fees. Those fund managers don’t do it for nothing. We would all be better off if the Government took over.

A.         Asking the Government to look after KiwiSaver may sound like a cheaper option, but it wouldn’t appeal to the surprising number of people who have told me that they don’t want to join KiwiSaver because they ‘don’t trust the Government’. While it may seem far-fetched, there are people who fear that their savings could be plundered by a Government in trouble.  

You are right - fund managers don’t provide their services for nothing. And it is important to know what fees you are paying, as high fees can erode value. It’s not just one fee either. KiwiSaver fees can include a monthly admin fee, a Trustee fee and an annual management fee. Dig a little deeper and you may also find that the manager is paying other managers to manage some of your investments. So that the fees don’t get out of hand, KiwiSaver fees are required by law to be ‘not unreasonable’ and fund managers’ accounts and practices are regularly scrutinised and audited. 

A Treasury spokesperson provided these comments: “KiwiSaver and the New Zealand Superannuation Fund (NZSF, sometimes referred to as the Cullen Fund) have different purposes and roles in providing retirement income for New Zealanders. The purpose of KiwiSaver is to encourage individuals to invest their own money, develop a savings habit and provide for greater income adequacy and financial independence in retirement. KiwiSaver was developed to provide individuals with a degree of choice over the direction and risk profile in the investment of their contributions. KiwiSaver funds are private savings vehicles which pay out a lump sum after the eligibility date (with some exceptions for early withdrawal). The New Zealand Superannuation Fund, however, has a different purpose which is to invest funds raised through general taxation and allocated by the Government. The NZSF was created to partially meet the Government’s future liability for New Zealand Superannuation payments and has a payout schedule for this purpose in its legislation.   Due to the nature of the NZSF, with its long-term investment horizon and large pool of funds, it is able to make larger, long-term and different risk profile investments that smaller domestic funds cannot access.  It is not current Government policy to change the current KiwiSaver system of competing private fund managers and replace this with a single fund manager in the form of the NZSF. This would require a wholesale amendment to the existing retirement income system.”

How much are you paying in fees? Most KiwiSaver investors are paying combined fees in the range of 1% - 2% depending on the fund manager and the type of fund. The more active the manager, the higher the fees. A passive fund does not need active intervention from skilled fund managers, as the parameters can be set and maintained by an automated system, hence the lower fees. 

What do you get for your fees? Are fund managers raking it in, or just getting by? It depends on their funds under management. The costs of setting up a KiwiSaver scheme are considerable, and it can be some years before fund balances are high enough for the fund manager to be in the black. Fund managers have to maintain thousands of individual accounts, communicate regularly with each customer, and comply with strict regulations.  

In order to find out more about the fees your fund manager charges, use the helpful comparative tool on the Sorted website. By keying in the name of your fund you can find out where it ranks in terms of fees, returns and service in comparison with other funds.  And if you want to know more, phone your fund manager on their 0800 number. Your fees are helping to pay for that service.