Greens say they can lower KiwiSaver fees 40%

The Green Party is proposing a seventh default fund which is says will have lower fees and increase members' savings "significantly."

Sunday, November 6th 2011, 9:53PM 7 Comments

Its so-called ‘public option' provider would use the NZ Superannuation Fund's Guardians as its investment manager and have either Inland Revenue or Kiwibank as the administration manager.

Green Party Co-leader Russel Norman says "a significant part of New Zealanders' savings get eaten away by costs and fees."

He says "the current costs and fees faced by KiwiSavers are prohibitively high reducing the incentives to join and eroding the value of KiwiSavers' nest eggs at retirement."

He argues this new option, would "lower costs sizably, saving tens of thousands of dollars," said today.

"If these savings are reinvested, KiwiSavers' nest eggs will be significantly higher, up to $142,000 higher in some cases ($64,000 in today's dollars).

"We will do for superannuation, what Kiwibank has done for banking. We will ensure there is a value for money public option.

He says significant fee and cost reductions would come through greater economies of scale.

"The Super Fund is the only purpose-built superannuation fund that's big enough to secure wholesale cost savings. The Guardians manage a $16 billion fund compared with

the $2.9 billion of assets managed by the six current default providers."

While the Greens talked of a seventh default provider Norman also referred, in his press statement yesterday, to having a single large default provider.

Full details of the policy are not yet available however there is a Q&A document here.

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Comments from our readers

On 7 November 2011 at 8:12 am Collin said:

Do politicians add any value to KiwiSaver, their continual tinkering has already destroyed value. A new default fund is meaningless. Shouldn't they (politicians) focus on getting KiwiSaver members to keep contributing to the plan because this is the easiest path to lower fees , namely higher account balances. The SuperFund is a price-taker in the investment world and its MER is not that low because of performance fees. If it were a default fund the SuperFund would have the highest MER at 0.645%. The management fees on default funds are already very low, how is anyone going to significantly lower them? Add value by leaving KiwiSaver alone.

On 7 November 2011 at 10:15 am Mac said:

Just another smoke screen by this far left political party for Government control of private savings. Next on their agenda will be the fund purchasing majority holdings in New Companies for defacto nationalisation of private enterprise.

On 7 November 2011 at 10:58 am Greg said:

Actually, I quite like the idea of utilising the NZ Super Fund as a default provider. They offer, in my view, a world leading funds management template. They do have the advantage of a long term investment horizon, and don't face the same liquidity (portability) issues that other fund managers do, but if I had to invest my money long term, they would be one of the first places I would look to.

On 7 November 2011 at 4:09 pm Mark said:

My understanding is that KiwiSaver Providers must allow investors to move providers when asked (Portability). This being the case NZSF would also be required to structure their KiwiSaver portfolios with the same underlying liquidity constraints and face the same portability issues.
A portfolio without a liquidity constraint and structured accordingly will on average outperform by 2-4%pa which would be a way better result for the Investor than any savings the Greens strategy could offer.
Colin's comments above are all valid.

On 7 November 2011 at 7:28 pm traveller said:

would the Greens put constraints on what the manager could invest in?

On 8 November 2011 at 10:33 am Richard James said:

While the idea of the Super Fund being the only default provider is inherently sensible the current political and public obsession with Kiwisaver fees is a red herring. KS investment management fees are low by any standards. Total costs just appear high at present because member balances are still relatively small and the administrative costs are too high. Both of those factors will normalise over time. But the greatest cost to KS investors will come in the form of their own behaviours. If we look at the international precedents (see the DALBAR studies) then it is clear that investor decision making costs investors 3-5% per annum over the long run relative to the performance of the funds/markets in which they are invested. That is a cost many times greater than the fee issue currently being debated. Ameliorating that behavioural cost should be where the debate is focused, and neither the Super Fund nor the Greens have an understanding or capability in that regard.

On 8 November 2011 at 1:05 pm PM said:

Surely the Greens primary focus should be on 'saving' the planet. Controlling the affects of earthquakes, volcanoes and the flow of wind, rain and the clouds. Then and only then should they delve into anything financial assuming the planet still exists.