The number’s up for hidden nest egg fees
Guarding your Kiwisaver against unforeseen fees is about to become a little easier – but you’ll still need to do your homework.
story instead of them having a preconceived idea, having read it somewhere.’’
She says Paul Holmes’ death had been the catalyst for that initial move.
‘‘After Paul passed away I realised how important it was to me to have parental figures in my life. I’ve been coming to Greece to visit my dad since I was about 10,
It’s scary how easy it is to be manipulated by numbers. Marketers know exactly how to frame sales and promos to get you to buy, buy, buy. Politicians fiddle with statistics to make themselves look good. Companies use creative accounting to try to downplay a poor performance. It’s not lying exactly, but it is pretty cynical.
Practitioners of the dark art of persuasion have learned that small differences in the way information is presented can have a big impact on our decisions.
This is why it’s brilliant news that all KiwiSaver providers are being forced to be more transparent. As of this month, the statements you receive will spell out the fees you pay in simple dollars and cents.
Some providers, like ASB, have been voluntarily doing this for years, but many others have not.
Chances are you’ll be seeing the number for the first time, in which case it could be a shock. Under the current model, you usually pay a flat fee of $30 or so, then perhaps one-pointsomething per cent of your balance.
That might sound like pocket change, but growing account balances mean it’s starting to become a very big deal. As some people are about to find out, they’re already paying over $1000 a year in fees – and we’re only 10 years into the scheme.
Let’s say you join KiwiSaver at age 20, and retire at 65. Over that time, you might end up paying anywhere from $8000 to well over $100,000 in fees, depending entirely on which fund you’re in.
That’s just the tip of the iceberg. Every dollar that goes to a fund manager is a dollar that could have been earning you several decades worth of compound interest. Over a lifetime of investing, the real impact is hundreds of thousands of dollars.
Hopefully staring those numbers in the face will give you the motivation to reassess which KiwiSaver scheme is right for you.
While fees are important, the first thing to decide is what level of risk you want – from a defensive cash fund, to an aggressive fund investing in property and shares, or anything in between. Sorted’s Fund Finder is a handy tool for figuring this out. Riskier funds are generally more expensive, but that’s compensated for by higher investment returns.
Once you’ve chosen your risk profile, you’ll notice there’s still a massive gulf in the fees charged by providers – from lowcost ‘‘passive’’ managers, who simply buy and hold a small slice of thousands of companies, to ‘‘active’’ managers who try to pick hot stocks and sectors, and charge significantly more.
The overwhelming weight of research suggests active managers can’t consistently beat the average market return. They might do well in any given year, but you’d expect that purely by chance. The only constant is the fees. Local fund managers argue that New Zealand is small enough that the ‘‘efficient markets’’ theory doesn’t apply. Personally, I don’t buy it, but you’ll have to make up your own mind.
KiwiSaver fees were supposed to get cheaper as the scheme scaled up, but that hasn’t really happened. Perhaps this new era of transparency will sharpen up the competition between providers, but I wouldn’t count on it. Instead, do your homework on the best scheme, and be sure to vote with your feet.
Perhaps this new era of transparency will sharpen up the competition between providers, but I wouldn’t count on it.’
Got a burning money question? Email Budget Buster at firstname.lastname@example.org, or hit him up on Facebook, where you can also find links to previous Budget Busters.
MIllie is happy with her new life in Greece – including her chef boyfriend Kostas Sarapapas, left, dad Stratis Kabanas, and English bulldog Miko.
Keeping your nest egg safe means getting to grips with hidden costs and fees.