KiwiSaver player: We’re declaring war on fees

Savings will have compounding effect, writes Susan Edmunds.

A new, not-for-profit KiwiSaver provider launching today says it is offering New Zealanders the chance to be $65,000 better off in retirement.

Simplicity is the pet project of former Tower Investments boss Sam Stubbs. It will be run by a charity, in a similar style to health insurance provider Southern Cross.

Stubbs said New Zealanders could expect to pay $54,700 on KiwiSaver fees on current structures over their working lives – more than the $35,900 they will fork out for their mobile phone bills or the $37,200 they will pay for power.

He is promising to slash that by heavily undercutting the market.

At the moment, the average KiwiSaver fund charges about 1.34 per cent of the member’s balance in fees. Simplicity is promising half of that – $30 a year in administration fees and 0.3 per cent per year in total management fees. Fifteen per cent of the fees paid will go to the Simplicity charity, which will work to promote financial literacy.

All three Simplicity funds on offer will have the same fee structure. Other KiwiSaver providers charge more for high-growth options.

Stubbs said if he could get 4 per cent of the market, that would represent a lifetime saving of $4 billion to New Zealanders.

The power of compounding interest would amplify the savings KiwiSaver members made, so the difference in returns for Simplicity savers should be bigger than just the difference in the fees they paid.

He hopes to shake up the KiwiSaver market in a major way. ‘‘If we can run the cheapest fund and still give 15 per cent to charity, then others can do it, too.’’

KiwiSaver was not as competitive as it should be, he said, and providers had not been given any incentive to change or reduce costs to members. The accounts are mostly at the big banks.

He said while they had developed large economies of scale as balances grew, fees had not shifted accordingly. Because it did not require providers to front up with capital, KiwiSaver had become a ‘‘gravy train’’ for providers, he said.

‘‘Compared to similar savings schemes in other developed countries, these fees are very high. Profits for KiwiSaver managers are at $150 million now. Without change, we think they will be at $1.3 billion by 2030.’’

Simplicity has developed a website portal to allow members to switch. Stubbs said the online focus of Simplicity was part of the reason it could offer lower fees. ‘‘There’s none of the high cost traditionally associated with financial products – commission, branches or shiny head offices.’’

Stubbs said lack of education and lack of transparency around KiwiSaver fees meant few people understood how fees worked and what kind of impact they could have on long-term savings.

‘‘We have declared war on high KiwiSaver fees today,’’ Stubbs said. ‘‘Most New Zealanders don’t even realise the high fees that they are paying.’’’

Two of the directors for Simplicity have previously managed the Westpac and Tower KiwiSaver Schemes, another is former head of supervision for the Financial Markets Authority.

Simplicity eventually plans to branch out into life insurance products. Stubbs said they were twice as expensive as they need to be.

He said it was refreshing and inspiring to be working on something that was designed to help New Zealanders, not line shareholders’ pockets.