Peters misses mark on fees

[UPDATED] Winston Peters’ claims that private managers are making excessive profits off KiwiSaver has been called “way off the mark” by the Financial Services Council.

Monday, October 21st 2013, 7:19AM

by Susan Edmunds

The NZ First leader told party faithful yesterday that a “bottom line” for his party being part of any coalition after the election was KiwiSaver being brought under Government management.

He said managers had already made $325 million in fees out of the scheme and “there’s worse to come”. He said an independent source had said managers would take $22 billion in fees over the next 30 years.

FSC chief executive Peter Nielson said the current level of fees had been certified as not unreasonable by the Government Actuary. He said they were lower than Australia and likely to decrease as funds under management grew. Account fees were higher then they could be because of the large number of small accounts that managers had to deal with, he said. As balances grew, there would be economies of scale.

“People who are unhappy with KiwiSaver management fees have a wide choice of over 20 providers who compete vigorously for the business and there will be further scrutiny with fee levels included in the Government’s tender criteria for selecting KiwiSaver default fund providers for the next seven years.”

Neilson said that the recent low prices paid for KiwiSaver funds management companies showed it was not yet a lucrative area of business because of a high account volumes but low balances.

Fees did not have the biggest impact on return overall, Neilson said. There was never going to be a solution that skipped fees entirely. "Even if you took it to the Super Fund tomorrow and told them to manage [KiwiSaver], they'd go from one account to two million, there's be some cost associated with that."

But he said Peters' idea of a guarantee for investors had merit. Many people did not receive the benefit of higher returns in growth or balanced funds because they worried about retiring during a down time. Other countries get around that by insuring against the "one year in 40" situation.

But Neilson said it would make sense for that guarantee to be available for all KiwiSaver members, not just people in Peters' planned Government-backed scheme. Many KiwiSavers assumed that bank schemes would be guaranteed in the same way that deposits were guaranteed during the GFC. "If people are assuming there is a taxpayer guarantee, it would probably be better if htye were paying for part of that."

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