Two important things to know about your KiwiSaver
A new survey shows many KiwiSaver investors do not know about two factors that can make a big difference to the amount of money they will have in retirement - fees and investment returns.
More than two-thirds of people surveyed said they did not know how much they had paid in fees, while nearly half were unsure how much their KiwiSaver investments had earned in the past year.
The survey was conducted by the Commission for Financial Capability (CFFC) and the Financial Markets Authority (FMA) for Money Week.
The Commission's investor education group manager David Boyle says "If you think it's not a big deal understanding the impacts of your fees and returns, you might change your mind when you find out what a difference both could make to the lump sum you end up with when you retire."
Over a lifetime a KiwiSaver investor in a "balanced" fund will pay $40,000 in fees on average and end up with $357,000 in their KiwiSaver account. (This is based on the assumption the investor earns a salary of $60,000 per year over their working life and makes a three percent annual contribution to KiwiSaver, matched by their employer).
The fees could be higher - or lower - depending on the fund that you are in.
Actuaries Melville Jessup Weaver have calculated that on average KiwiSaver investors are paying 1.3 percent of their balance in fees each year.
Funds charge fees because they employ people to manage the money. They need to pay salaries, pay their service providers (trustees, custodians, lawyers, etc.). They also spend money on technology, like computers.
Mr Boyle says "The trick is to look at similar funds to yours and see how the costs compare and what sort of investment returns they have earned."
"Most of us are pretty careful about other kinds of fees - you wouldn't take on a real estate agent without finding out what it was going to cost you. Nor would you pay someone $60 to mow your lawns if you could get it done for $40 unless they trimmed your hedges too. So why pay KiwiSaver fees without knowing how much they are and what you are receiving over and above the cost of managing your money?"
The Commission's website Sorted has a KiwiSaver Fund Finder that allows you to compare different funds and to look at how they vary for fees, services offered and returns.
KiwiSaver analyst Binu Paul says there is no doubt that fees make a big difference to your returns.
But he says the cheapest fund is not always the best one to go for. There are other factors to consider as well, like the level of service offered by the provider.
The Financial Markets Authority says it is important that there is transparency around KiwiSaver funds so that investors can make their own decisions about whether the fees they are being charged are reasonable and appropriate for the returns and services they are getting.
"Our view of good conduct is that providers should be able to explain to customers why they think their fees are reasonable. And that customers should be equipped with the right information to be able to compare fees and costs and ask providers hard questions about what they are paying for, like they would any other type of service provider."
Fund managers generally report their fees in percentage terms. But 94 percent of people surveyed by the FMA and the CFFC said they would like to see their KiwiSaver fees reported in dollar terms in their annual statement.
It can be hard for people to visualise what they are paying for when they only see a percentage charge.
Work is underway by the FMA, the Commission and the Ministry of Business, Innovation and Employment to require providers to show fees in dollars.
Nearly two thirds of respondents to the survey said they expected their fees to remain the same even as the value of their KiwiSaver account goes up.
The Commission's David Boyle says "This shows people may not understand how the fees are charged on their investment, but it's also important for KiwiSaver members to look at the returns after fees."
A growing number of people know how much money is in their KiwiSaver account, with almost 90 percent of respondents saying they knew, to the nearest $5000, how much they had.
At least two-thirds of men gave an indication of how much they expected their fund to return in the next year, but women were more uncertain - or were not as willing to take a guess.