KiwiSaver Fees Competitive with Australian and British Peers

Highlights:

• Lower Default Fund Fees: KiwiSaver default funds generally have lower fees compared to similar funds in Australia and Britain, offering better value for investors.
• Minimal Scale Benefits: Despite smaller funds under management, KiwiSaver fees remain competitive, showing minimal benefits of scale compared to larger markets.
• Comprehensive Fee Comparison: Fees for choice funds in New Zealand and Australia are roughly equivalent when considering management style, asset allocation, and scale, highlighting KiwiSaver's competitive positioning.

KiwiSaver fees are "highly competitive" with those charged by much larger Australian and British counterparts, according to a Deloitte Consulting Australia analysis commissioned by Generate KiwiSaver.

Lower Fees in Default Funds

The study found that fees for default KiwiSaver funds are generally lower than those for similar default funds in Australia and Britain. Despite New Zealand's smaller funds under management (FUM), the fees remain competitive, providing value for investors.

Minimal Impact of Fund Size on Fees

Deloitte's analysis revealed a weak relationship between fund size and total fees paid. Due to lower average fees and smaller FUM in New Zealand, the expected benefits of scale seen in larger markets are not evident. This suggests that New Zealand's fee structure is efficient even without the advantages of larger fund sizes.

Fee Comparisons and Impacts

The report compared average KiwiSaver account balances of NZ$30,000 and NZ$50,000 across New Zealand, Australia, and Britain. It found that while fees charged by choice funds vary widely, they become roughly equivalent when considering management style, asset allocation, and scale. Deloitte emphasized that fees are a crucial factor impacting retirement outcomes, making them a global focal point for pension systems.

Legislative and Structural Considerations

Deloitte's comprehensive review included each country's retirement income system, legislative impacts such as fee caps, asset allocation requirements, product structures, and fee mechanisms. The analysis covered the largest providers and representative funds from major sectors, including all six New Zealand default providers, with data valid as of March 31.

Dollar-Based Fees

Australian managers commonly charge dollar-based fees, with 79% of default products and 71% of choice options charging a median fee of NZ$62 annually. In contrast, no New Zealand default providers and only 29% of choice funds apply such fees, with the highest being $36 annually. In Britain, only 17% of funds charge dollar-based fees.

Growth Asset Allocation and Fee Structure

Funds with higher allocations to growth assets typically have higher fees due to increased management costs. Deloitte noted that New Zealand and UK funds generally have lower FUM compared to even the smallest Australian funds. Moreover, the Australian system offers more high-growth options compared to New Zealand.

Fee ranges for a NZ$30,000 balance in a choice fund varied from a median of 0.48% to 1.01%, and for a NZ$50,000 balance, from 0.44% to 0.92%. These findings highlight KiwiSaver's competitive positioning in the global market.

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