Focus on fees for long-term KiwiSaver benefit

Focus on fees for long-term KiwiSaver benefit

Dr Ayesha Scott – Lecturer, Finance (AUT)

Media coverage of research released today by KiwiSaver provider ANZ, which includes comments regarding a worrying trend that young people are too concerned with KiwiSaver fees rather than focusing on returns, flies in the face of current research on what is most important when it comes to KiwiSaver decisions.

“This trend is a concern, as choosing a fund solely on fees means members may miss out on greater returns and a larger balance in the long term,” the ANZ investment team says.

Both the prevailing global research on fund performance, and expertly conducted and independent research by Professor Bart Frijns and Dr Ivan Indriawan, at the Auckland Centre for Financial Research, on the returns performance of managed funds in New Zealand suggests that no fund outperforms over the long term (when you compare performance against appropriate risk-adjusted benchmarks). And long term is exactly what a KiwiSaver scheme is, especially for young people with their eye on retirement 30 to 40 years from today.

Further, the Commission for Financial Capability hint at the same point as the research by asking investors to think about fees:

“KiwiSaver fees are one area where it’s not necessarily true that ‘you get what you pay for’. Higher fees don’t necessarily mean higher returns or better service,” it says.

Ultimately, the best advice for anyone embarking on KiwiSaver investment is to choose the fund with the lowest fee structure for the fund type you are investing in (defensive, conservative, balanced, growth or aggressive). You can’t bank on good returns continuing into the future, but you can opt for an investment that costs less, potentially increasing your retirement savings to the tune of tens of thousands of dollars.

ENDS

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