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Is KiwiSaver As Good As It Seems?

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Contributor:
Mary Holm
Mary Holm

Question:

Aged 90, I've known various financial opportunities, both fortunate and disastrous. But I have never heard of any scheme such as KiwiSaver, which presents one with $1000 when joining and in addition provides a 100 per cent gift annually on whatever has been contributed to a certain limit.
 
Although the scheme is popular I cannot understand why the benefits are ignored by some young folk I talk to who are unjustifiably apprehensive because of costs being publicised.
 
Do you not agree that the benefits require stressing to encourage participation in KiwiSaver?

Answer:

I certainly do. Some say I rave on about those benefits too much. But they are extraordinary - also including employer contributions and help with buying a first home.

I suspect your comment about costs refers to a Weekend Herald article last week about KiwiSaver fees, which started, "New Zealanders saving for their retirement could pay more than $60,000 in fees over their working life."


It gave examples of fees from the KiwiSaver fee calculator on www.sorted.org.nz in a way that might confuse readers.

In my book The Complete KiwiSaver, I say the following about that calculator: "Don't be shocked when the calculations come up with figures like $15,000 or $25,000 in fees, and percentages that might be above 10 per cent.

"That does not mean you are paying those sorts of numbers in a single year. The dollar figure in the first column is the total fees you are expected to pay over the whole period from now until when you can get your money out in retirement ... the percentage in the second column is the dollar figure as a percentage of your expected retirement total.

"Given that it incorporates payments over many years - for younger people several decades - it will be a much higher proportion of your retirement total than you would pay in a single year."

So what might a KiwiSaver member pay over a year? A typical annual fee is $25 to $50 plus a total of 0.3 per cent to 2 per cent of their balance - with riskier funds charging more than conservative funds because they cost more to run. On a balance of $10,000, that comes to $55 to $250 a year.

Because of the fixed $25 to $50 - which covers admin - the total fee will be a much higher percentage of low KiwiSaver balances in the early years than of higher balances later on.

To put it simply, KiwiSaver fees range from reasonable to highish. Before someone rushes to compare them with the non-existent fees on bank term deposits, let's look behind the scenes.

Banks allow for their admin costs and profits when setting the interest rates on term deposits. They could pay higher interest and charge a fee. Instead they simply pay what is really "after-fees" interest.

Last week's article quoted Government Actuary David Benison as saying KiwiSaver providers should look into reducing their fees.

I would love to see that happen. But even if it doesn't, KiwiSaver is such a good deal - as our correspondent points out - that the fees are not a good reason to stay away.

Oh, and congratulations on your attitude - so refreshing compared with retirees who can only complain that they have missed out on KiwiSaver. I hope you don't mind my saying that you remind me of the wise old owl advising children about saving.
 

Mary Holm is the author of bestselling books on KiwiSaver and personal finance. She is also a highly praised seminar presenter. Her written advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following that advice.      

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