KiwiSaver fees are one of those things that you might not think about particularly often.

You might notice your balance moving around, or your contributions going in each time you are paid, but the deduction of fees sometimes flies a bit under the radar.

But over the course of your investing lifetime, fees – and what you get for them – can make quite a big difference to your outcome.

Here’s a quick rundown of what you need to know.

What fees are charged?

Most KiwiSaver funds charge a percentage of the total amount invested as a fee. So if, for example, you have $45,000 invested for a year, and the fee is 2% (which is on the high side), you’ll pay $900 in fees over the year.

Some providers also charge a fixed administration or management fee each year.

Is low-fee always better, and how do fees affect returns?

For most investors, the most important consideration is whether they are getting value for the fees they are paying.

Active managers generally tend to charge more than passive managers, because it takes more time and resource to deploy a strategy that aims to beat the market returns. Some  investors want that process for their investments and are happy to pay more for it.

Higher-risk investments often also come with higher fees, for similar reasons.

It may be more appropriate to compare the returns that providers have been delivering after fees are deducted, rather than comparing just the fees.

There are tools online that allow you to compare the performance of various KiwiSaver providers.

While it’s important not to extrapolate too much from short-term past performance, KiwiSaver has been operating long enough now that it is possible to see which providers have been steadily producing favourable returns over the longer term.

How have they changed over time?

As the KiwiSaver savings scheme has matured, more options have been added to the array of fund choices. That has included more passive providers, which generally tend to charge lower fees that the active fund managers.

A number of providers have dropped their administration fees, and some newer, smaller providers offer cheaper – or no – fees for kids or people with very small balances.

From December 2021, new settings for default funds lowered what they were able to charge and created a more transparent structure for fees.

Because the bulk of the fees charged are calculated based on the amount of money invested, it has generally been the case that the overall level of fees being paid across the KiwiSaver universe has increased year-on-year over time, as balances have grown.

But the Financial Markets Authority’s KiwiSaver report for the year to March 2023 showed the first drop in fees since the scheme began.

The FMA said that was due to lower default fees, fewer performance fees being charged and the removal of fixed membership fees by many providers.

Like some help?

If you’d like a hand working through the fees each provider is charging, and what that might mean for your investment plans, get in touch with us. We can help you work out what settings might be most appropriate for you.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.