by Susan Edmunds
The Ministry of Business, Innovation and Employment sought submissions on potential changes to the annual statement rules for KiwiSaver, including requirements that providers show members what income their accounts are on track to deliver in retirement, the amount of fees they have paid each year in dollar terms, and a prompter to seek help on getting more from KiwiSaver.
The Bankers Association said it would be possible by next year to produce statements showing members’ current balance, the total amount the account grew by over the year, transactions through the year and an encouragement for investors to seek help on increasing the money they had available at retirement.
But the other changes proposed would take longer.
It said providers would have a number of issues to address if they were required to calculate each member’s projected retirement balance and income.
“This is because a number of detailed and technical assumptions need to be worked through to achieve accuracy, consistency and comparability of this information for consumers. Without guidance on this issue, or sufficient time to test and implement the Retirement Income calculation, these projections are likely to be misleading and confusing.”
The submission said this requirement could be brought in, in 2018.
NZBA said two of the six bank KiwiSaver providers who are its members are in a position to disclose fees in their statements, and already do.
But it said for others, it would be difficult.
“The calculation of these fees is complex, as percentage-based fund charges are calculated at fund rather than investor level, and it is therefore not a case of summing transactions per investor. Calculation logic also needs to be applied to each investor taking into account considerable complexities such as multiple funds held by each investor, potential switching between funds and total fees changing during the period.
“Regulations will need to be developed so that all of these complexities are taken into account and all providers are calculating total fees paid on the same basis, which importantly ensures customers are receiving consistent information that is comparable across industry.”
But the NZBA said it did not support highlighting fees in the way MBIE suggested, with a “total fees” circle on annual statements.
“In NZBA’s view this places a disproportionate emphasis on fees over performance. Whilst fees are an important factor in retirement outcomes, ultimately net performance is more important.
“Fees are one element of the overall retirement investment and in many instances reflect active/passive fund management. In an actively managed portfolio, higher fees are appropriate, as they reflect the work undertaken by the provider. All fees should be considered in light of the total return, so that the member can form their own view about the fee in light of the service they have received and returns their fund has made.”
NZBA said if fees were given such weight, it could drive a culture where KiwiSaver members chased low fees at the expense of optimal savings growth.
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As we often read, including on this blog, it is the level of fees that are the major determinant of long term returns for a given level of risk. To suggest that this is not an important matter for the investor or may lead them into bad decisions is ludicrous. It is banks mis-selling their own products that is the really big issue which the regulator is loathed to address. Total fees are basically the price the provider is seller their product for and the consumer has the right to know what the total costs are for comparison with others. As we all know, price is one determining factor and level of service is another and both are important. Such disclosure will also better segment the KiwiSaver market and create competition; something the banks are not used to in their cosy little arrangement amongst themselves and with the captured regulator.
Perhaps we need a corresponding article here from investor groups; title could read "Investors raise concerns about 'fee-hiders'".