New Zealand Listener - May 26, 2018

16 LISTENER MAY 26 2018

INVESTMENT

KiwiSaver conidence

collected management fees of $82.4 mil-

lion from the 30 KiwiSaver schemes on offer

at the end of last year. On top of that was

another $266.3 million in performance-

management fees.

Understanding the interaction between

all these fees and the returns produced in a

KiwiSaver fund can be both confusing and

intimidating. For example, financial markets

produced strong returns on investment for

KiwiSaver funds in 2017. As a result, perfor-

mance-based investment management fees

rose 21.3%, compared with the year before.

However, those fees fell as a proportion of

total returns to 9.8% in 2017 from 16.9%

in 2016, reflecting strong wealth creation

last year.

At the same time, however, the basic

management fee for administering an aver-

age KiwiSaver account rose from $84.15 to

$97.82 – a 16.2% rise when the bureaucracy

of managing a KiwiSaver fund didn’t change

much, if at all.

In 2016, the fee for

administering an

average KiwiSaver

account rose 16.2%

when the bureaucracy

of managing it didn’t

change much, if at all.

GETTY IMAGES

DO COMPARE FEES AND RETURNS

USING THE GROWING RANGE

OF TOOLS available on the

websites of the Government’s

Financial Markets Authority

and Commission for Financial

Capability. The FMA’s KiwiSaver

Tracker shows the efect of fees

in a simple visual way, whereas

the CFFC’s site, sorted.org.nz, is

brimming with impartial advice

on comparisons.

DON’T CHANGE YOUR KIWISAVER

PROVIDER OR FUND TYPE

BASED ON THE FEES ALONE.

Higher-risk and more actively

managed KiwiSaver funds

should cost more because they

are also seeking larger returns in

the long term. “I would be very

concerned if people simply said,

‘I want the cheapest provider’,

because that might not be the

best for them,” says Massey Uni-

versity banking professor Claire

Matthews.

DO LOOK AT THE FIVE-YEAR AVER-

AGE RETURNS rather than what

happened in the past year.

DON’T CHANGE YOUR FUND JUST

BECAUSE IT LOST GROUND IN

THE PAST YEAR, especially if it’s

a growth-oriented or “aggres-

sive” fund. Investing is diferent

from saving and these funds are

long-term bets. There will always

be ups and downs along the

way.

DO READ YOUR ANNUAL STATE-

MENT. Matthews worries that

although disclosing annual fees

in dollars is a good thing, few

people are bothering to read

the annual information their

KiwiSaver provider sends. “I

suspect a number of people

get them and don’t even open

them and if they do, throw

it in the bottom drawer or

whatever.”

DON’T EXPECT THE PAST TO BE

A GUIDE TO THE FUTURE.

Investment theory says that

long-term investors should

take more risk because experi-

ence shows that generates

stronger returns. However, the

future is a place none of us has

been yet. If you can’t tolerate

risk, then maybe a conserva-

tive fund is an option for you.

But remember: a 25-year-old

putting 5% of his or her annual

income into a KiwiSaver

growth fund rather than a con-

servative fund can expect to

increase the retirement value

of their KiwiSaver account

by as much as $700,000,

according to Milford Asset

Management.

DON’T STAY IN A DEFAULT FUND

UNLESS YOU MEAN TO. If

you haven’t actively chosen

which KiwiSaver fund to be in,

get of your chuf and do it. If

you’re not sure what a default

fund is, then you’re probably

in one. And if you’re under 30,

you’re letting someone else

waste your money. Think of it

like this: when you’re 75 years

old, which would you rather

be able to aford: a new pair

of slippers or a spur-of-the-

moment light to see your

grandchildren? Get on with it.