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Under The Hood Of KiwiSaver

The latest KiwiSaver report shows the scheme is now the engine driving a big part of our national wealth, but it also highlights areas that still need work, writes Liam Mason of the FMA.

5 October 2021

This year’s Financial Markets Authority’s annual KiwiSaver report shows just how much the scheme continues to grow. It now represents a significant chunk of the nation’s wealth, as it nears NZ$60 billion under management.

Over 130,000 people joined KiwiSaver for the first time this year. Funds under management continue to grow rapidly – with NZ$8 billion in assets added. Just over NZ$1 billion was withdrawn by people aged over 65 who are able to access their KiwiSaver accounts, up 43 per cent on the previous year. KiwiSaver’s now playing an increasingly important role in helping Kiwis buy their first homes.

Over the year, 39,617 first-home buyers withdrew a total of NZ$953 million, a 32 per cent jump from the year before, NZ$723 million. The numbers we, as a conduct regulator, are watching closely are probably the growth in income for providers from fees, and also the number of default KiwiSaver members who’ve been encouraged to make an active choice about their fund this year. In the 12 months to March 2019, 52,289 default members made active choices about their investment, much higher than the 28,603 the year before.

As part of our monitoring of default providers, we can see that this was largely due to the increased efforts of a number of providers. Six out of the nine appointed default providers have made solid improvements in their ability to reach and encourage members to consider their investment selection. We’ve raised the issue of fees in our report over the last couple of years.

This year again we were surprised that costs per member had not fallen faster, given the growth in funds under management. It appears that the benefits of scale enjoyed by the larger providers are not being passed on to investors. The figures show that overall income from fees has increased to NZ$480 million. This translates to an average management fee-per-member of NZ$132, a rise from NZ$116 in 2018. It’s going up in parallel with the increase in average balances.

The rising income per member clearly shows the relationship between a percentage investment fee and the money in the member’s account. That management fee might stay the same, but the money the provider makes will go up as members’ balances rise. The reporting cycle for the report is 30 March, which means any drop in fees since that date will not have been picked up in the 2019 report.

We recognise there are signs of increased competition, with new entrants building market share, some with low, flat-fee structures. These signs are positive, but we remain focused on promoting transparency and improved understanding of fees so investors can make informed choices.

For the next year, we’ll be asking providers whether they can justify and explain to investors exactly what they’re paying for. ‘Value for money’ includes explaining their investment style and how higher fees may be justified for services such as active fund management or responsible investment funds.

Published 25 November 2019

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