Helen Twose 's Opinion

Personal finance and KiwiSaver columnist at the NZ Herald

Kiwisaver: Fees can eat into children's accounts

4 comments
Kids under 18 do not get the tax credit so charges will cut into performance if the savings are not added to.

Virtually all KiwiSaver managers charge a dollar-based account fee to handle all the high administrative costs that come with KiwiSaver. Photo / APN
Virtually all KiwiSaver managers charge a dollar-based account fee to handle all the high administrative costs that come with KiwiSaver. Photo / APN

My children have been in KiwiSaver for around five years and when switching between providers I received a statement detailing the fees.
One son had paid $241 in fees over that period.
The children got the $1000 KiwiSaver kickstart but we hadn't made any further contributions over that time.
When I queried the fees I was told the fee is up to 1 per cent of the member account balance per year, subject to a minimum of $50 a year.

This is gouging and predatory.

They take yearly custodial and management fees in ANY event.
Appropriating 20 per cent of the value of these children's accounts is opportunistic.
Fair enough if they were actively contributing but simply because they are small the $50 or 1 per cent for each year is simply a rip-off.

The provider claims that the final statement summarises the 63-month period.
Whether or not it is fudged, a $50 annual fee ($4.16 per month in the small print) wipes out most of your returns while the accounts remain dormant - or under $5000.

So the conclusion is don't open a Kiwisaver account without attempting to get the funds up to a economic amount (probably $5000+), because all your likely returns will be eaten up by the 1 per cent or $50 minimum per annum charges.

Small and fledgling KiwiSaver accounts are mere fodder for the manager's bottom line via the excessive fee structure.

As you've discovered KiwiSaver fees can make a real difference to the return you get, particularly on accounts with low balances.

I was sent the details of one of children's accounts, which I'll summarise:

•Joined in November 2008 and received $1000 government kickstart.

•Received $40 fee subsidy, an incentive phased out in April 2009.

•No contributions or member tax credits.

•$241.28 paid in fees and 60c in tax.

•$406.72 earned in investment returns.

•Total of $1204.84 transferred to new provider.

I spoke to Chris Douglas, co-head of research for Morningstar Australasia, about your problem.

Morningstar regularly runs the ruler over KiwiSaver providers, surveying fees and performance.

This is what he had to say: "Dollar-based account fees can be very expensive - especially when you have low balances (like those for children).

"In your case, the children are being charged $50 a year, which equates to a 5 per cent loss (on the $1000 kickstart), before they have even started investing.
That is not an easy number to consistently beat."
Chris Douglas, Morningstar

"All KiwiSaver investors will get the $1000 kickstart from the government, but children under 18 don't get the $521 annual contributions match.

"So if you aren't adding to a KiwiSaver account, the fees and charges will eat away at the performance," says Douglas.

"Fees and charges will differ according to provider.

"In your case, the children are being charged $50 a year, which equates to a 5 per cent loss (on the $1000 kickstart), before they have even started investing.

"That is not an easy number to consistently beat.

"The average return for the five default funds since inception (from October 1 2007 to February 28, 2014) is 5.28 per cent a year.

"And it's worse for those in higher risk profiles as a result of losses in 2008.

"Virtually all KiwiSaver managers charge a dollar-based account fee to handle all the high administrative costs that come with KiwiSaver.

"At least with your children's KiwiSaver provider they only charge a dollar-based account fee or percentage-based fee, making it simpler to understand.

"But they are expensive when you compare the total cost (including dollar-based account fees) with other providers.

"If you look at our KiwiSaver survey, which highlights the total percentage-based fee and the dollar-based account fee, you will note almost all charge both fees.

"The dollar-based account fee ranges from $24 to $50 a year. Quite a difference. Then you have the percentage-based fee on top of this. This ranges from 0.34 per cent per year to 3.59 per cent.

"Westpac KiwiSaver has a great initiative which deserves wider recognition. The firm waives its $31 account fee for children under 18.

"This provides a great advantage for those who want their children to be a part of KiwiSaver and one that we believe makes it very tough to beat."

Fees charged by KiwiSaver providers are regulated.

The fees for the default provider schemes are negotiated with the government.

All the other schemes are monitored by the Financial Markets Authority which ensures the fees are in line with the KiwiSaver legislation and not "unreasonable".

If you are unhappy with your KiwiSaver provider there is a process for making a complaint, detailed on the government's KiwiSaver website: www.kiwisaver.govt.nz.

In the first instance you should talk directly to your provider, but if you are not making any headway with your provider or its trustees you can take your grievance to an independent disputes resolution service at no cost.

•Disclaimer: Information provided is stated accurately to the best of the respondent's knowledge at the time of publication. It is general in nature and should not be construed, or relied on, as a recommendation to invest in a particular financial product or class of financial product. Readers should seek independent financial advice specific to their situation before making an investment decision.

To have your KiwiSaver questions answered by the Herald's panel of industry players email Helen Twose, helentwose@gmail.com.

- NZ Herald

Helen Twose

Personal finance and KiwiSaver columnist at the NZ Herald

Helen Twose is a freelance business journalist who writes regularly about KiwiSaver and entrepreneurial companies. She has written for the Business Herald since 2006, covering the telecommunications sector, but has more recently focused on personal finance and profiling successful businesses.

Read more by Helen Twose

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