Mercer calls for greater transparency

Mercer reduces KiwiSaver fees and calls for greater transparency

26th November 2009

Mercer has announced the reduction of fees within its suite of KiwiSaver products in response to consumer demand for competitive pricing, but warns that New Zealand investors could be missing the point by focusing on the level of fees alone.

Martin Lewington, Head of Mercer New Zealand said a lack of transparency in the system and the inability for consumers to make direct comparisons between products is the real issue around costs.

“Mercer’s member research found that 86 per cent of members rated competitive fees as an important or very important fund feature. In response to this concern, we have recently reduced a number of fees on our KiwiSaver products. These changes include a reduction of more than 25 per cent in the Mercer Superannuation Trust (MST) KiwiSaver product from $3.85 per member per month to $2.85,” Mr Lewington said.

“Other changes included reductions in fees to our Cash Option, Active Balanced Option, and Membership fee, as well reducing the admin fee (to 0.15%) and Trustee fee (to 0.03%).

“Fees are necessary in most retirement income savings systems and it is true they can impact retirement savings.

“However, this is only one part of the picture: there is a broader problem in New Zealand with fees, which is not necessarily their size, but the lack of standardisation in relation to KiwiSaver, which makes it very difficult for consumers to compare apples with apples,” he said.

Mr Lewington said Mercer advocates the introduction of standardised fee disclosure and believes it will make product comparisons easier for researchers, advisors and consumers.

“We want to see greater transparency and visibility around the composition of fees, so that New Zealanders can make educated decisions regarding their retirement nest-egg.

“You only need to look as far as the labelling of fees by providers to see that it is inconsistent. For example some providers appear to load their admin fee into their investment fee while others quote their expected returns net of tax, investment fees and other expenses,” he said.

Moreover, Mr Lewington argues that it’s in the industry’s interests to make KiwiSaver easier to understand and standardisation is also needed around unit pricing.

“KiwiSaver should be simple, yet for many scheme members, trying to get a balance on their fund can be a difficult task. This is because many in the New Zealand fund industry have decided to quote unit prices which are net of fees and gross of tax.

“Quoting unit prices in this way is potentially misleading as customers cannot identify the actual return they will receive from each fund once tax has been deducted. They simply have no way of knowing how much will be left when they retire,” Mr Lewington said.

Mercer has chosen to calculate unit prices net of tax and fees on a daily basis so that investors can find out the true value of their balance at any time.

“By calculating unit prices in this way, if a member has 100 units and the published unit price is $1, then the member can calculate that they will get $100 if they leave today – it’s that simple, he said.

“Fostering confidence in the scheme will plant the seeds for future growth. If we can do this we can make KiwiSaver a world-class retirement system,” Mr Lewington concluded.

-Ends-

© Scoop Media