KiwiSaver managers making “excessive profits”

Simplicity cuts KiwiSaver fees and complains other managers are charging too much.

KiwiSaver manager Simplicity has made a 3.3% total fee cut across its conservative, balanced and growth KiwiSaver funds and diversified investment funds. The new total fund charge will be 0.30%, effective April 1. The fee cut is the fifth in five years.

Simplicity removed annual member fees for investors under the age of 18 in 2018, and the following year moved to a single member fee regardless of the number of funds held by an investor. In 2020 the membership fee was reduced by $10, and this fee was eliminated for all members in December 2021.

“As a non-profit, we continue to pass on the benefits of scale to our members,” Simplicity managing director Sam Stubbs said. “And we’re on track for more fee cuts in the future.”

Stubbs was very critical of the excessive profits being made by many KiwiSaver managers.

“The FMA annual KiwiSaver report showed fees in 2022 were $692 million. That’s almost $1.9 million every calendar day,” he said.

“Yet being a KiwiSaver manager requires no statutory capital, and involves huge economies of scale,” he said. “Fee cuts in our industry should be frequent, but they aren’t.”

The June Quarter 2022 Morningstar KiwiSaver survey shows the average asset based fee for conservative funds is 0.63%, Balanced funds 0.86% and Growth funds 1.03%.

Simplicity’s current fee for all its diversified funds is 0.31%, ie. 51%-69% lower than the industry average.

“The maths is tragic, because the numbers suggest that as much as 50% of KiwiSaver fees, which ordinary New Zealanders pay out of their savings, is either profits for the fund managers, or commissions for financial advisors,” Stubbs said.

“That suggests potentially $345 million in excess fees last year,” he said.

“KiwiSaver is a wonderful retirement scheme. But sadly, too many in the finance industry treat it like a trough of fees, with too few benefits of scale passing back to their members,” he said.