Inside Money: KiwiSavers getting relative bargains

KiwiSaver fees have been a subject of perennial debate, so why stop now?

In its latest release on the matter, fund research house Morningstar has added more quant to the debate, showing that, in general, New Zealanders are getting a pretty cheap retirement investment solution compared to our Australian cousins.

The Morningstar review does not cover the entire KiwiSaver pack, limiting itself to the default providers plus Westpac and Fisher Funds, which is nonetheless a significant chunk of the market.

"... KiwiSaver fees are closer to Australian wholesale rates than to the fees Australian retail investors pay, a favourable development for New Zealand investors," Morningstar NZ head, Chris Douglas, notes in the article.

The accompanying table does indeed show the KiwiSaver funds investigated by Morningstar attracting fees of roughly just 10 basis points more than Australian wholesale fund rates in most categories - with the exception of the 'aggressive' sector, which is 20 basis points more expensive than Aussie wholesale (but still over 40 basis points cheaper than Australian retail fees in the same fund category).

Douglas explains the higher aggressive fee level "is skewed by the 2.43 percent fee for Fisher Funds Growth KiwiSaver, and by the comparatively small number of options in the category".

Furthermore, on average Morningstar says the KiwiSaver funds are good value compared to other managed funds available to New Zealanders.

But the Morningstar data also reveals quite a spread between the most expensive and cheapest KiwiSaver fund in each category.

For example, fees in the 'conservative' sector (really like an enhanced bank account) range from 36 basis points to an astonishing 1.5 per cent. 'Aggressive' KiwiSaver options can be bought from between 90 basis points and the previously-mentioned 2.43 per cent on offer from Fisher.

The logical conclusion is that it may pay to shop around.
Or as Douglas puts it: "... while a fee higher than peers alone should not keep you from investing in a fund it is the one constant that will drag on returns so should be carefully considered before investing."