Kiwisaver account fees
04/04/2013 Comments Off on Kiwisaver account fees
I complained a while back that the information from my Kiwisaver provider was opaque. The results — whether the annual report or my personal statement — didn’t actually tell me the critical number: what was my return? If I want to compare Kiwisaver with, say, a five-year bond ladder, I need to know what the percentage return on my money was. That information would allow me to make decisions at the margin about whether to put more money in Kiwisaver or in some other investment.
My provider, when asked, did provide a *.pdf of all the transactions in my account. All I needed to do is get the data into a spreadsheet (really?! a pdf?) and then do some analysis. At the time, I had other things to do, and then the data got old, and, and. So I never did it.
The latest annual report (2012) had some interesting figures that give an indication. In a table on page 9, we learn that total income of the scheme was $16m, on assets of somewhere between $150m (starting balance) and $191m (ending balance). That’s an average return of about 9.5%.
The management and administration fees, however, don’t appear on that page. They appear on page 4, not in a table but in the text. Total fees were $1.6m. That is, roughly 10% of account earnings went to paying the fees of the scheme.
On the one hand, this is a problem. Making a good return on investments is hard. I looked at the research 10 to 15 years ago, and I don’t imagine much has changed. Most schemes perform worse than the benchmark indices. Schemes that do well in one or two years revert to the mean. The critical thing is to control the things you can control, and one of the top things is account fees. If 10% of earnings are going to pay the managers (and more in bad years), that’s a big lump of money that isn’t staying in your account, compounding the years away.
On the other hand, I have some sympathy for the Kiwisaver schemes. Revenue of $1.6m actually won’t buy you all that much management. There are thousands of members and thousands of transactions to administer, and then there is all the work trying to manage the investments. Scale and systems are required, and I’m not sure we have achieved that.
In the end, what makes Kiwisaver work for investors is the government contribution. It represents in part a transfer to the investments firms, sure, but at least I get a piece of it. Without it, I would probably be better off paying down our mortgage. Not that I can tell for certain, since they won’t tell me what my return really is.