Inside Money: Total KiwiSaver - a fee by FUM analysis

What's the annual cost of KiwiSaver management? Photo / Thinkstock

The costs of KiwiSaver have come under scrutiny of late based on figures published in the Financial Markets Authority (FMA) annual KiwiSaver report.

I also had a stab at costing KiwiSaver based on the FMA report and came up with a figure of 1.8 per cent of funds under management.

However, after completing the painstaking (and frankly quite tedious) task of collating information from the annual reports of all providers, barring the odd company-only scheme, I've had to revise that cost downwards.

As my data reveals, I could only trace about $100 million of fees and expenses versus the FMA figure of $164 million previously cited. On a straight ratio basis that would equate to an annual KiwiSaver cost of about 1.13 per cent of funds under management (FUM).

But on a rough time-weighted calculation (comparing fees and expenses against an average FUM over the year to March 31, 2011), the average cost of KiwiSaver comes to about 1.4 per cent of FUM.

Over that period, the total gross KiwiSaver investment returns totaled about 7.1 per cent with an average net (after fees and expenses) return to members of 5.7 per cent.

As the table illustrates, though, there's quite a wide divergence of costs and returns among the 42 schemes on show here. The extreme outlier is the recently-deceased Huljich KiwiSaver scheme, which reported the highest costs (4.3 per cent) and the second-lowest return (1.9 per cent) making it the only provider to record a net loss to members.

The Huljich figures are unusual in that they cover the 14 months to May this year, when the bulk of members transferred to Fisher Funds KiwiSaver, but the results are nonetheless shocking.

The data also shows that Huljich in its final reporting period cost members 222 per cent as a ratio of investment returns - that is for every $1 Huljich earned, members shelled out $2.20. The column, which I have labeled 'Costs per return', represents a simple ratio of the March 2011 Cost and Return figures and are not averaged over the year. Even so, the numbers seem to refute claims that default providers are skimming off 40 per cent of investment gains - according to my figures, the range is between 15-28 per cent.

The statistics reported here differ slightly from an earlier table first published on Australian investment newsletter I&T News - namely, the Average Cost column (appearing there as Cost per FUM) was not weighted over the year.

Also, in the I&T version, the Milford Asset Management investment return was, somewhat unfairly, reported as 5.4 per cent rather than the 10.8 per cent recorded in the new, improved model. Apologies to Milford - the difference was due to a failure to appreciate that zero can sometimes be counted as one.

Like all statistics, my KiwiSaver table can only approximate reality - it's a snapshot of your money in time, scrutinise its flawed beauty.