The Financial Markets Authority (FMA) is looking closely at how much KiwiSaver providers charge after another big surge in fees in the year to March.
The FMA, in its annual report for the industry, said Kiwisaver funds under management shot up by 17 per cent to $57 billion in the year while the average management fee per member rose by 13 per cent to $132.
"We are pretty interested in the rate of which fees are increasing - or not coming down - as we would expect them to," FMA director of regulation Liam Mason said.
"That tells us that we are really going to keep looking at that area," Mason told the Herald.
"The focus for us is providing value for money and challenging providers to show us how they are providing value for whatever fee they charge," he said.
"We will be looking at funds and looking at the actual activity to see whether they look like active fund managers or passive ones, and of course to their disclosures and what they say they do," he said.
Research prepared for the FMA by Melville Jessup Weaver, suggested fees charged by KiwiSaver providers were high compared to broadly similar funds in the UK.
"We are concerned that the benefits of scale, at least for the larger providers, are not being passed on to investors," Mason said.
"Over the coming year, we will be asking KiwiSaver providers to demonstrate how they are providing value for money for members."
The FMA will also be looking at providers who say they provide extra benefits - such as ethical or responsible investments.
"What's really important from our point of view -- because investors have no way of knowing what's happening under the hood - is that we have truth in advertising."
"If I say it's all down to my crack investment management team then I really ought to have a crack investment team is who is making some active decisions," he said.
"We are not saying there is outrage here, we are saying that we need to look at this more because the fees don't look as low as they ought to be," he said.
As asset prices have gone up, so too has the amount collected in fees.
"So that's why we are saying that on an economies of scale basis we would have expected them to be coming down, and to not be going up so fast," he said.
Mason said KiwiSaver continued to expand its role as an important component of New Zealand's financial sector, with contributions, investment returns and outflows all increasing.
Withdrawals from 65 year-old plus Kiwisavers broke through $1 billion for the first time.
The FMA said the default members - financial institutions who provide Kiwisaver services for those savers who don't specify a choice - showed an increase in engagement with their customers.
The default providers had improved their percentage of members who had made an active choice on their investment.
"This has been a key focus for us over the past few years so it is great to see more than 52,000 default members made an active decision about their investment over the past year – up significantly from just over 28,000 in the prior year," the FMA said in its report.
The Financial Services Council (FSC) welcomed the release of the annual FMA report on KiwiSaver and the solid progress it shows in a number of key areas over the last year.
"This is a valuable annual temperature check of the KiwiSaver system, how the scheme is evolving, what's going well, and what remains a work in progress", said Richard Klipin, CEO of the Financial Services Council.
"We also acknowledge the clear message in the report about fee levels and the desire from the FMA for them to reduce," he said in a statement.
In a move apparently timed to coincide with the report's release 's release, BT Funds Management (NZ) Ltd said it would reduce fees for Westpac KiwiSaver Scheme members from December 1.