There has been much talk lately about KiwiSaver fees and the impact this has on the value of KiwiSaver funds over time. Simplicity KiwiSaver is a recent market entrant which prides itself on low fees and uses this as a selling point. The Financial Markets Authority (FMA) has recently changed the way in which KiwiSaver providers disclose fees so that funds can be more easily compared.
For the first time, KiwiSaver members will be able to see their fees in dollar amounts on their fund statement. Previously, these fees have been expressed as a percentage of the amount invested. To help make fee comparisons, the FMA has launched a “KiwiSaver Health Checker Tool” which can be found online at www.fmahealthchecker.co.nz. This tool shows the returns of your KiwiSaver fund over a five year period and the fees you have paid. The fees are shown as a percentage of the return of the fund. You can compare funds based on the fund type, so if you are in a Balanced Fund you can compare all Balanced Funds to see which gives the best net return after fees. While this is interesting, the Health Checker Tool clearly demonstrates that, in general, the choice of fund type - Defensive, Conservative, Balanced, Growth or Aggressive – has far more impact on the net return than the fees.
Over the long term, funds with a higher weighting towards shares produce a considerably higher net return than funds with a higher weighting towards bonds. KiwiSaver members who have been automatically enrolled in KiwiSaver are put into a default fund which has a low exposure to shares and a low return. While it is useful to know about fees, there is much work to be done to inform KiwiSaver members about how to choose the best type of fund.
Liz Koh is an Authorised Financial Adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847. For free eBooks, go to www.moneymax.co.nz and www.moneymaxcoach.com