Inside Money: Aussie research house finds KiwiSaver cheap and cheerful

KiwiSaver gets mostly good marks from Australian research house SuperRatings, which praises the New Zealand system for its efficient, reasonably-priced and engaging qualities. Photo / Thinkstock

Almost two years since it was first flagged in this column, Australian research house SuperRatings has released its first analysis of the KiwiSaver market.

And KiwiSaver gets mostly good marks from SuperRatings, which praises the New Zealand system for its efficient, reasonably-priced and engaging qualities.

In a release, Adam Gee, SuperRatings chief, said overall KiwiSaver "operating costs remain economical, allowing providers to offer well-developed products at a very reasonable cost".

Gee said the IRD's role in maintaining the system has without a doubt played an important part in keeping KiwiSaver schemes cheap and running smoothly "in comparison to other global retirement systems".

"In addition, the use of a single account for each individual adds further efficiencies to the system, mitigating the multiple account issues currently evident in Australia," he said.

KiwiSaver's administrative simplicity is certainly a big factor in its cheapness relative to the Australian system, which was hammered in a report last year. (However, Gee told me as well as its administrative unwieldiness, Australian super funds are more expensive because they also have a life insurance component - sometimes including total and permanent disability options, which have been problematic for providers.)

Perhaps the most surprising of SuperRatings findings, however, is the high engagement of KiwiSavers compared to Australian super members. According to the research, about 80 per cent of KiwiSaver members have actively chosen a scheme or investment option: in Australia the same proportion of super fund members remain in default investment options.

Gee said KiwiSaver's home withdrawal option could explain the comparatively high level of engagement in the system, particularly among younger members.

"This [interest from the younger demographic] is not evident in other markets where balances are accumulated solely for retirement purposes," he said.

On the potentially downside, however, SuperRatings did note that there was a wide variation of asset allocation strategies in schemes with share the same label.

"Unlike Australia, where the majority of conservative, balanced and growth investment options use reasonably similar allocations to asset classes, the KiwiSaver system shows large differences, which will make it challenging for members to easily compare options," Gee said.

In addition to its general findings SuperRatings assessed and graded (on a precious metal scale) 32 schemes, which is just about the whole lot.

However, SuperRating's results may not be directly comparable to other KiwiSaver surveys such as those issued by Morningstar, FundSource, Melville Jessup Weaver - or even my own annual effort.

Gee said SuperRatings, a division of Lonsec, looks beyond investment returns and fees into issues such as governance, administration, member services, education, advice and communication when ranking schemes.