Every KiwiSaver provider charges fees, and these fees reduce your returns over time. While fees may seem small as percentages, they compound to significant amounts over decades. Understanding what you pay and why helps you make informed decisions about your KiwiSaver provider.
The difference between a high-fee and low-fee provider can mean tens of thousands of dollars more at retirement.
Types Of KiwiSaver Fees
Management fees cover the cost of running the fund and making investment decisions. These are usually expressed as a percentage of your balance, such as 0.5 percent or 1.2 percent annually.
Administration fees cover account maintenance, statements, and customer service. Some providers charge fixed dollar amounts, others include this in percentage fees.
Performance fees are charged by some providers when returns exceed certain benchmarks. These reward managers for strong performance but add to costs in good years.
How Fees Are Charged
Fees are typically deducted directly from your KiwiSaver balance. You do not receive an invoice or make a separate payment. This makes fees invisible unless you check your statements carefully.
The fee amount is calculated on your balance, so as your balance grows, so does the dollar amount you pay. A 1 percent fee on $100,000 is $1,000 annually.
Fees are usually charged regularly throughout the year rather than in a single annual deduction. This means they compound slightly against your returns.
Comparing Total Fees
When comparing providers, look at total fees including all components. A provider advertising low management fees might have high administration fees or other charges.
Fee disclosure documents show comparable total annual fees. These are required to use a standardised format that helps you compare across providers.
Consider fees as a percentage and also calculate the dollar amounts for your balance. Both perspectives help you understand what you are paying.
Fee Levels By Fund Type
Generally, actively managed funds charge higher fees than passive index funds. Active managers research and select investments, which costs more than simply tracking an index.
Whether active management is worth the extra fees depends on whether it delivers better returns after fees. Evidence is mixed, with many active managers underperforming passive alternatives.
Growth and aggressive funds sometimes charge more than conservative funds due to more complex investment strategies. Compare within fund types for accurate assessment.
Long-Term Fee Impact
The impact of fees compounds over time. A 1 percent annual fee difference on $10,000 initial investment growing at 5 percent before fees makes a substantial difference over 40 years.
Lower fee fund after 40 years: approximately $70,000. Higher fee fund after 40 years: approximately $48,000. That is a $22,000 difference from just 1 percent in annual fees.
Reducing fees early in your KiwiSaver journey has the greatest impact because those savings compound for your entire working life.
When Higher Fees Might Be Worth It
Some investors choose higher-fee providers for particular features. Ethical or sustainable investment options, specialised strategies, or excellent service might justify premium pricing.
The question is whether the higher fees deliver enough additional value, whether through returns or features, to offset the cost.
Review whether you actually use and value the features you pay extra for. Many people pay premium fees without accessing premium services.
Checking Your Current Fees
Your annual KiwiSaver statement shows fees charged during the year. Review this to understand what you currently pay.
Compare your fees against alternatives. If you are paying significantly more than comparable providers, consider whether switching makes sense.
Fee comparison tools help you see how your provider stacks up. Several financial websites offer free comparisons.
Reducing Your Fees
Switching providers is free and straightforward if you find a lower-fee alternative with suitable investment options. The new provider handles the transfer process.
Within your current provider, different fund types may have different fee levels. Check if you can reduce fees by switching funds if appropriate for your investment strategy.
Ask your current provider about fee discounts. Some offer reduced fees for employer group schemes or larger balances.
Balancing Fees And Features
The cheapest option is not always the best choice. Consider the complete package including investment options, performance history, service quality, and fees.
However, high fees without clear additional value simply reduce your retirement savings. Be critical about whether premium fees deliver premium outcomes.
A moderate-fee provider with solid performance and good service often represents the best balance for most members.
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