KiwiSaver fees too high: Actuary

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The Government Actuary David Benison says that KiwiSaver fees are too high and need to come down.

Wednesday, April 7th 2010, 5:07AM 1 Comment

by Philip Macalister

 “In my opinion fees should not be more than $1 per member per month and be now tracking down to somewhere between 0.2% and 0.8% funds under management.”

He told a recent conference management fees should be 20 basis points for cash funds and up to 80 basis points for growth assets.

Benison expects that more competition will bring fees down. Kiwibank chief executive Sam Knowles is on record saying he thinks KiwiSaver fees are too high.

“Hallelujah,” Benison says.

Kiwibank is due to introduce its own scheme soon. Other fund managers such as NZ Funds Management are also expected to launch their schemes this year.

Benison is also critical of trail commissions being paid to advisers.

His view is that if fund managers can afford to pay a trail commission then they are making too much money from KiwiSaver.

He says he has never approved a trail commission.

“This is because a fee should reflect the advice or service given.” “A trail commission is almost the opposite. Hence if a provider is paying a trail commission, however small, it is being paid out of the manager’s fee.”

He says that KiwiSaver has been far more successful than originally forecast and that fund managers have probably come into profitability on this business in half the time originally forecast.

In less than three years 1.3 million people have signed up to KiwiSaver and there is around $5 billion in funds under management. Former finance minister Michael Cullen said at the start of the scheme that KiwiSaver was forecast to have 850,000 members by June 2017.

Benison says the trebling of members means that the breakeven points for providers to “cover their enormous set up costs and move into profit were halved at least.”

“Some had talked of a nine to 10 year period to reach breakeven. I would not be surprised if some of those providers have already reached breakeven or at least can see it coming.”

He estimates that this year KiwiSaver providers will be paid around $40 million in management fees and another $40 million in membership fees.

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