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Bank dangles the ‘no fees’ carrot for KiwiSaver
 
Q. Westpac staff have told me that kids pay no fees on KiwiSaver until they are 18 years old, provided a Westpac savings account is opened and an annual deposit made.  I have read that fees can make a big impact on KiwiSaver performance. Should I be signing my kids up into KiwiSaver with Westpac?
 
A.  Fees can make a big impact on KiwiSaver returns particularly for those with a lower balance. Many children will just have the $1000 ‘kickstart’ in their account so you do have to be aware of the impact of fees.
 
Westpac is currently offering children under 18 a full rebate on the monthly administration fee on their KiwiSaver fund as long as they open a savings account, maintain a minimum balance of $50 and make at least one deposit per year into their savings account. 
 
Note that it is just the administration fee that is being waived, not the management fees or indeed any of the other costs and expenses associated with KiwiSaver. Westpac’s KiwiSaver administration fee is currently $2.59 per month ($31.08 per year) so that is what your child would be saving. All KiwiSaver schemes charge an administration or member fee which is usually $3 - $5 per month. For someone with just $1000 in their account this will eat into their returns by 3% - 5% per year. 
 
If parents can afford it, it is a good idea to add to their child’s KiwiSaver account. Firstly it will reduce the impact of the administration fees on the balance. More importantly, they will one day (perhaps a long time from now) be able to access those funds for a First Home withdrawal. 
 
What about other KiwiSaver fees? Compared to some fund managers Westpac fees are quite low - the management fee for their balanced fund is 0.65% per annum and the trustee fee is up to 0.065% per annum ($7.15 per year for someone with a balance of $1000). 
 
Fees can be confusing. The Financial Markets Authority is working towards greater clarity on KiwiSaver fees so that investors can find out what they are paying. You can compare the impact of fees between your fund and others on the Sorted website.
 
What Westpac if offering is not a free lunch. In order to get the KiwiSaver admin fee rebate you have to open and contribute to a savings account for your child. Banks have extensive marketing strategies and budgets which are all geared to showcase their products and services to potential new customers like you and your children. You can be sure that the bank is hoping to win back what it may be losing on the KiwiSaver account, and get a customer for life as well. 
 
I am all for knowing what the fees are and making sure you are not paying too much, but choosing a fund on this basis alone is not a good enough reason. The quality of the fund manager’s communication with investors is important. KiwiSaver is a great opportunity for young people to learn about investing, and if the newsletters are interesting then they may actually get looked at before being binned or deleted. You should also look at the performance of the fund and how it compares with other similar funds. Westpac may be offering a tasty carrot, but you need to look at the whole meal before making a decision.


Shelley Hanna is an Authorised Financial Adviser FSP12241.  Her disclosure statement is available on request and free of charge by calling 8703838.  The information contained in this article is of a general nature and is not intended to provide personalised advice.  If readers have any KiwiSaver questions they would like answered please go to www.peak.net.nz or email shelley.hanna@peak.net.nz.