Changes to default providers won’t lower KiwiSaver fees as Govt hopes, say experts

Experts have poured cold water on the Government’s hopes that a major shake-up to the KiwiSaver default providers will bring down fees across the industry.

And the majority of those appointed as new default fund providers say the low fees on offer through their default schemes won’t be applied to their other funds.

On Friday the Government announced the nine current default KiwiSaver providers would be slashed to six from December 1.

The newly appointed providers are Bank of New Zealand, Booster, BT Funds Management (Westpac), Kiwi Wealth, Simplicity and Smartshares (NZX).

That means that ASB, ANZ, AMP, Fisher Funds and Mercer will lose their current default provider status.

People are allocated to a default KiwiSaver fund when they are automatically enrolled through starting a new job and don’t choose their own fund and there are currently 381,000 people in the schemes.

Finance Minister Grant Robertson said the Government’s major KiwiSaver shake-up would apply “competitive pressure” to other private fund managers to slash their fees.

“I think and I hope that this will lead to a greater level of competition, and they will lead to a lowering of fees,” he told media after the announcement.

He said that KiwiSaver fees have been too high for too long and the Government’s move would help deliver a much-needed shake-up.

The fees for the newly appointed providers range from 0.2 per cent up to 0.4 per cent, a substantial drop on the current range of 0.38 per cent to 0.52 per cent of funds under management plus a monthly member fee for some.

But Claire Matthews, a KiwiSaver expert at Massey University, said the fees that the current default providers charged were already lower than the industry.

“It doesn’t seem to influence what is charged on other funds.”

Matthews said part of the problem was that there were fewer default members coming into the scheme because there was already a high uptake of KiwiSaver in the population.

Around three million New Zealanders belong to the retirement savings scheme.

“Any impact I think is going to be minimal.”

She said if the Government had put in a requirement for default providers to also charge lower fees on their funds it would have been more effective.

“If they had done something like that, that would then start to have an impact because that would impact more broadly.”

Matthews said the reality was what drove fees is whether consumers made choices based on those fees.

“And I don’t think consumers make choices based on their KiwiSaver fees.”

She said part of the problem was that the difference between 0.35 per cent 0.4 per cent didn’t look like much to the average person.

“But when you look at it over the amount you have in your KiwiSaver and you look at it over the lifetime of your KiwiSaver it becomes much more significant but most people aren’t going to be looking at it like that.”

Matthews said if the Government believed fees were an issue then it made sense to regulate them properly as opposed to relying on the market.

But Robertson said it had done its bit with the default providers because that was the part of the market the Government could control.

“Ultimately this remains a competitive environment and I think we have done our bit within the default providers because that’s the bit of the scheme we manage and control.”

Chris Douglas, principal at MyFiduciary, said he did not believe the change would result in fees coming down across the industry.

“The reason I say that [is] because this is just the default funds.”

Douglas said he would be looking closely to see what happened to the fees for the other funds run by the newly appointed default providers.

He said currently there was a situation where some providers had a very cheap default fund but their other funds charged fees that were above average effectively providing cross-subsidisation.

“I’m wondering if we will still see that across the default provider options.”

The Herald asked the newly appointed default providers whether they would be cutting the fees at the other funds but Simplicity was the only manager to confirm that it would be charging the same fee on its non-default funds as its new default option.

“Our fees will be no member fee, and 30bps for management. We will apply that to all our funds, default and non-default,” chief executive Sam Stubbs said.

Melissa Vasta, GM retail and product at Kiwi Wealth, said its new default balanced fund would charge 0.37 per cent.

But at this stage it did not plan to change the fees on the rest of its funds because the default fund was a passive offer as opposed to its other funds which were actively managed.

Active management is where individual funds managers select what investments are made versus using a passive management approach where computer algorithms are used to track market indices.

A spokesman for Smartshares said its default KiwiSaver fund was purposefully designed to be cost-effective and would offer the lowest fees of all the default schemes at 0.2 per cent.

“We will be engaging with new members to encourage them – based on each member’s own circumstances –to explore our SuperLife KiwiSaver scheme more broadly, which has a range of 42 other options.

“These include easy-to-use conservative, balanced and growth funds but also provides KiwiSavers who want more choice with access to a wide range of Smartshares Exchange Traded Funds. Each of these has its own fees structure.”

A Booster spokesman said it would not be changing the fees on its other funds.

“The default fund is a low-cost option.Our active choice funds by comparison include exposure to our specialist unlisted New Zealand investment vehicles (PLPF, Booster Tahi LP, NZIB).They also include the option of much wider SRI [Socially responsible investment] exclusions.Financial advice is embedded into these funds as are other value-add benefits such as accidental death cover.”

A BNZ spokesman said it was still finalising its plans.

“Our default balanced fund fee will be lower than the current fee for our conservative default fund, and we will be undertaking annual reviews of all our KiwiSaver fees over the next few months.”

A Westpac spokesman also said it was in the process of reviewing fees on its other funds.

The six newly appointed providers will take over from December 1. Current default members of providers who will no longer have default status will be moved to a new appointee automatically unless they tell their current provider they want to stay put.

New default provider fees:

• BNZ 0.35%
• Booster 0.35%
• BT Funds Management (Westpac) 0.4%
• Kiwi Wealth 0.37%
• Simplicity 0.3%
• Smartshares (NZX) 0.2%

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