Funds get fee warning

There’s a suggestion New Zealand KiwiSaver schemes could face a fee crackdown similar to that being suggested in Australia.

Monday, December 15th 2014, 6:00AM

by Susan Edmunds

Australia Financial System Inquiry chair David Murray has set a deadline of 2020 for the MySuper default super regime to produce results, and says if it doesn’t, it should be replaced.

Among the inquiry’s 44 formal suggestions are potential shake-ups to the default fund selection process. Murray said the Government should see the impact of MySuper on fees.

“We have recommended that MySuper be replaced with a competitive mechanism for allocating default members to the best funds if MySuper has failed to deliver significant fee reductions by 2020,” Murray said.

“This represents a challenge to the superannuation industry because we still believe that 120 basis points of average fees is too high and limits the accumulation over time.”

David Boyle, of the Commission for Financial Capability, said there was a way to go before New Zealand’s super saving industry encountered that level of intensity of scrutiny.

“However it may come a lot sooner that it has taken in Australia if things don’t change. Remember they have had nearly 25 years of compulsion - not withstanding a significant amount of regulatory change for that matter - and with average balances far larger than say our KiwiSaver ones, the impact of fees are very material in real dollar terms.”

In New Zealand, the average annual fee for default providers on a balance of $7000 is $69.

He said it should be expected that with market competition, increasing average balances, greater transparency around disclosure and fees, and their impact on total returns, investors would be driven to seek the best overall solutions in the market.

Allan Rickerby, who deals in super saving on both sides of the Tasman dismissed the recommendations as “noise”. “It’s such a political hot potato bouncing around. I see this as noise and chatter. The fees for most MySuper products are well under 120bps.”

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