Charges can severely dent retirement savings over time so choose wisely, says analyst

Savers should question how much their KiwiSaver provider is charging because it can have a big impact on their nest egg at retirement, says the research head of a financial ratings firm.

Chris Groth, head of research at Canstar, which today releases its latest star ratings for 91 KiwiSaver funds, said 70 per cent of its rating assessment was based on cost.

"We take the view that the biggest indicator to have an impact on the fund is the fees. So we put a lot of focus on fees."

Groth said Canstar's ratings did not take investment performance into account because a substantial review of academic research concluded there was no strong evidence that one fund could perform better than any other over the long term.


Groth, who is based in Brisbane, said fees were considered to be so important in Australia that superannuation schemes had to include a statement saying that fees can have a significant impact on the end balance.

"Over the long term what you pay will have an impact on your retirement savings' balance and should be taken into account. Whether it is a big fund or a small one make sure you are getting value for money and that you are comfortable with that."

Most KiwiSaver schemes charge a flat membership fee on an annual basis as well as having operating costs which have to be paid for out of a fund's assets.

But there is a high level of variation.

The three-star rated Gareth Morgan conservative KiwiSaver scheme doesn't charge a membership fee but charges 1 per cent of assets under management.

At the other end of the scale two-star rated Craigs Investment Partners KiwiStart defined scheme charges a $60 membership fee and 0.75 per cent of assets under management.

Both are conservative funds.

Canstar uses the fee calculator on the sorted website to work out costs based on a person earning $50,000 a year and contributing 2 per cent per year.

Groth said it was still very difficult to work out all of the fees a scheme charged.

"A lot of fees are not reported. That's one of the shortfalls in information."

He hoped that would change next year when the Government introduces standardised reporting for all KiwiSaver schemes.

Over time he believes the cost will come down.

"I think we will see a bit more competition in that space. As they grow they can afford to take less in membership fees."

Canstar's rating system also shows smaller schemes can be just as competitive as the giants of the industry.

Both KiwiSaver minnow SuperLife and major provider ASB have a five-star rating for their conservative schemes.

Groth said the difference between ratings for schemes of a similar cost were their features.

Canstar takes into account other fees, communication, account access and function, investment options and the ability to get financial advice without extra cost.