Time to come clean on KiwiSaver fees

The Government had the opportunity to force KiwiSaver providers to quantify all their fees and add-on charges so that the public could have some certainty about what they were letting themselves in for.
Press Release – Gareth Morgan

Too many providers have continued the old savings and insurance trick of identifying only fees and telling savers in the small print that expenses will be “charged to the scheme”. The average saver could be forgiven for thinking that since the scheme will pay these expenses the individual account fees will be confined to the headline numbers. Absolutely wrong; all fees and expenses eventually get paid by savers.

This duplicitous behaviour is compounded by the fact that a significant chunk of ordinary fees and expenses are not quantified savers are left to guess what these might amount to and how they might affect their long-term returns.

And this is an industry whose spokesman Vance Arkinstall claims pursues best practice and is a fit ‘to be trusted’ guardian of the public’s savings. It’s an industry that for decades has pillaged the savings of a trusting public and lined its pockets at its customers’ expense.

We would certainly support any move by the Government Actuary to force schemes to quantify all their fees. Our independently verified fees comparator recognises the insidious practice of having non-quantified ordinary expenses. Our estimates of how much these add to total fees are pretty conservative (around 0.12%). For those schemes with very low headline fees the real figure could be 0.3% to 0.4%.

If ISI members seriously believe in best practice they should include all ordinary fees and expenses in their headline fee number so the public can be quite clear about what they are being charged then we and the public wouldn’t have to estimate them. Gareth Morgan KiwiSaver and SmartKiwi KiwiSaver schemes appear to be the only ones, so far, that have a single all-up fee covering all ongoing fees and expenses.

No newspaper-published table has recognised the non-quantified element of ordinary fees a dereliction of care which puts the public at an even greater information disadvantage.

Virtually all KiwiSaver schemes have some ability to raise fees to cover the possibility that new government regulations could force up scheme management costs. The KiwiSaver Act allows schemes to charge reasonable fees, or put another way, they are not allowed to charge unreasonable fees.

Now the Government Actuary has some duty to prevent schemes from charging unreasonable fees, but so far it has not published any guidelines for what he regards as reasonable. So, the public have no idea how far most schemes can increase their fees. One or two, including ourselves, have stated their maximum fees, which, since the Actuary has ticked them off, must be regarded as reasonable and therefore at least what other schemes can raise their fees to.

It’s time to remove uncertainty over fees. It has been a strategy used by the insurance and savings industry to dupe savers for far too long and the government could and should have put a stop to for Kiwisaver schemes.