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KiwiSaver likely to have high fees: Aon

The government’s KiwiSaver workplace savings scheme will probably have much higher fees than existing superannuation schemes, says Aon consulting.

Wednesday, June 15th 2005, 7:53AM

by Rob Hosking

Aon’s general manager David Wood says the extra flexibility and administrative requirements the scheme will have is going to mean higher costs for fund managers. They will have to pass those costs on, he says.

“There is quite a bit of flexibility in terms of people being able to change fund manager; change the fund they are in; take a contribution holiday, that sort of thing.”

Other factors include the link to the home buyer package, which allows people to draw on some of their savings for a deposit.

”The providers are going to have to have systems tracking what goes where, and some of the things being thrown into the mix are not being catered for by existing systems.”

The other factor for providers is the high number of small transactions.

The government intends to provide a subsidy for the scheme’s fees. Those are to be capped ie: it will be on a per person per year basis.

Just what that will be is still subject to negotiation by providers. At present the government has allocated $500 million a year.

The official “regulatory impact statement” accompanying the Cabinet papers shows that the government considered totally subsidising fees as this “would increase the total lifetime rate of return by around 1.2% per year after tax”.

The same document warns that “a fee subsidy alone may not be sufficiently attractive to encourage participation.”

KiwiSaver is due to start in 2007. Negotiations with providers are scheduled to start later this year.

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

« KiwiSaver wins praise from international bodyMore incentives for KiwiSaver possible: Cullen »

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