KiwiSaver: Small changes in return can make big difference

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KiwiSaver: Small changes in net return can make a big difference

CANSTAR researches 29 funds from 25 providers across four investment profiles to determine outstanding value for workers.

Since the commencement of KiwiSaver in 2007 an impressive 2.53 million New Zealanders have become KiwiSaver members. The schemes are offered by both banks and investment companies – and with the KiwiSaver Periodic Disclosure Regulations introduced two years ago it’s easier now to compare funds on a like-for-like basis.

“As well as fund performance, one thing that savers should definitely check on their Kiwisaver statement is the amount of fees coming out,” saidCANSTAR General Manager – New Zealand, Jose George. “CANSTAR’s analysis of 29 KiwiSaver Schemes from 25 providers has found quite significant differences in the level of fees changed. These differences can potentially add up to a lot of money over the course of your working life.”

Difference in Kiwisaver Fees

As an example of the range of fees charged, CANSTAR calculates the minimum, maximum and average annual fees that could apply on the Kiwisaver schemes assessed, on an account balance of $9,000, as follows:

“A difference in fees of, say, $80 per year might not look too bad when you’re just starting out with Kiwisaver,” said Mr George. “But keep in mind that many Kiwisaver fees can be charged as a percentage of the account balance; as your account balance grows, the difference between minimum and maximum fees you could paying will widen significantly. And even those small differences in fees can have a large effect on your eventual nest egg, thanks to the power of compounding.”

How much might you end up with?

Your KiwiSaver account, if treated with the respect it deserves, could be a handy little pot of gold for you thanks to the power of compounding interest along the way. Assuming that a 30 year old starts a KiwiSaver Balanced Fund and contributes $3,000 per annum, indexed at 3% for 30 years, potential nest eggs could be as follows:

Return – 6%, net of fees

Return – 8%, net of fees

“The above figures show the big difference that small changes in annual return can make,” said Mr George. “Importantly, the calculations above are showing the return net of fees; after fees are taking into account. Obviously your Kiwisaver fund, whichever one you choose, won’t achieve the same return year in, year out, but it’s nevertheless a good example of the cumulative difference that changes in net return can have.

Which Kiwisaver providers offer outstanding value?

CANSTAR has compared 29 Kiwisaver funds from 25 providers, rated across four different profiles – “conservative”, “balanced”, “growth” and “cash” and looking at more than 80 features of each product.

Several KiwiSaver products have been found to offer outstanding value this year, and have therefore been given five-star ratings. Those products are:

Balanced:

Smartshares KiwiSaver Scheme – The Smartshares Kiwisaver Scheme really impressed on price, offering the cheapest balanced fund of those researched; charging only $78.31 per year (with an average fund fee in this profile on researched funds of $120.84).

ASB KiwiSaver Scheme – The ASB Kiwisaver Scheme also charges fees below the industry average and combine this with some impressive features, including unlimited free switches between asset profiles, free withdrawal and comprehensive online applications.

Kiwi Wealth KiwiSaver Scheme – As well as offering unlimited free switches and free withdrawals we were impressed with the online and mobile presence of Kiwi Wealth KiwiSaver Scheme. The fees are also competitively below the industry average.

Cash:

BNZ KiwiSaver Scheme – The BNZ Kiwisaver Scheme is the cheapest cash fund in our research - $50.40 per annum compared to an industry average for cash asset allocations of $90.48. The features offered are also impressive and include unlimited free switches and withdrawals.

Kiwi Wealth KiwiSaver Scheme – This scheme is only just off the price mark at a very competitive $50.57 per annum. The features are also good, with unlimited free switches and withdrawals and a consumer-friendly online experience.

Conservative:

Grosvenor KiwiSaver Scheme – In terms of conservative asset allocation products, the Grosvenor KiwiSaver Scheme is the best-priced in its class – average fees are $43.02 compared to the average of $95.91 in this profile. Grosvenor also stood out with the top feature score for its education resources and online accessibility to annual reports, investment statements and forms.

Kiwi Wealth KiwiSaver Scheme – Another solid performer in our comparison, the Kiwi Wealth KiwiSaver Scheme charges annual fees of $50.47, well below the average across researched products of $95.91.

Growth:

ASB KiwiSaver Scheme – This scheme scored very well on features, offering unlimited free switches and withdrawals plus a comprehensive online offering which includes application and balance check facilities. It is also price competitive, with fees well below the average of products assessed.

Kiwi Wealth KiwiSaver Scheme – Outstanding product features include unlimited switches, free withdrawals, online and mobile application and account access. Annual fees are also very competitive.

Superlife – With annual fees of just $90.60, Superlife is price competitive. It also offers unlimited free switches and has an impressive range of educational resources.

Consumers can download the KiwiSaver Star Ratings report at www.canstar.co.nz

ENDS

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