KiwiSaver fees may seem insignificant, but can add up to tens of thousands of dollars over time, an expert says.
As part of Money Week, Newshub looked at KiwiSaver fees - a fee that, unlike others, is automatically deducted rather than billed as an invoice. For this reason, it's a charge that easily goes unnoticed.
Newshub asked Sorted managing editor Tom Hartmann to explain what KiwiSaver fees are, if they're important and how members can check if they're paying higher than the average.
There are two types of KiwiSaver fees: a 'membership fee', charged as a flat dollar amount each year. There is also a 'management' fee, charged as a percentage of the KiwiSaver balance. This pays a fund manager to invest money on the member's behalf and the dollar amount increases according to balance.
According to Hartmann, what members should be most interested in is the return after fees. From that, they can make a judgement on whether the fee seems reasonable.
"As they're taken out behind the scenes and represented as tiny percentages: they don't seem a lot. But over decades, it means tens of thousands of dollars," Hartmann said.
Fees differ across providers and funds. Funds that require investment managers to do more work can attract higher management fees.
"When a fund manager has to maintain an asset mix, for example, which shares, commercial property to put funds in, they typically charge more," Hartmann explained.
Using my own KiwiSaver 'growth' fund as an example, in the year ending March 31, I paid $151.40 in fees and expenses, excluding tax. According to the Sorted KiwiSaver fees calculator, if I were to keep everything as it is, it estimates that age 65, I will have paid $7160 in fees - around 10.5 percent of my balance (savings).
For a 25-year-old, based on the same criteria, total fees are estimated at $32,460 (18.3 percent).
As it provides a comparison of fees and returns across different providers, Sorted's 'Smart Investor' tool allows members to check what they're paying - and earning - seems reasonable. For example, if their provider charges higher-than-average fees, it's useful to check whether, over the last five years, they've achieved higher-than-average returns.
"We take both fees and combine them based on a balance of $10,000 to give people an easy way to compare other [providers] of the same fund type," Hartmann explained.
The tool shows that the average combined fee for a balanced fund is 1.35 percent. For a defensive fund, the average is 0.93 percent.
For a growth fund, it's 1.43 percent. For those with a lower KiwiSaver balance who may not contribute regularly, one way to save money is to check and compare membership fees.
"If you have $3000 in your account, your return over the year is $150 and there's a fixed fee of $60, over half your return is going to that fee," Hartmann explained.
Some providers have already scrapped member fees and others waive them for children and over '65s.
"Member fees are around $35 to $40, ours is $36 per year ($3 per month): we don't charge that for members under 21 or over 65," Murray Harris, head of KiwiSaver and distribution at Milford Asset Management added.
Koura founder Rupert Carlyon emphasised that rather than fees, what's most important is being in the right fund, and "finding a provider to help you get in the right spot" at retirement.
Unlike many utilities, KiwiSaver fees don't tend to change regularly. People are encouraged to make a choice on what level of fees seem reasonable for their circumstances.
"By international comparisons, [our fees] are very high...based on the scale of the fund, we're paying a lot for fund management here, so we want to make sure it's worth our while," Hartmann added.
Members can how much they're currently in fees paying by looking at their KiwiSaver Statement.