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New Zealand Financial Market Authority: KiwiSaver Providers Respond On Member Engagement But Little Movement On Fees

Date 09/10/2019

The Financial Market Authority (FMA) has today published its annual KiwiSaver report for the year to the end of March 2019, showing a welcome increase in default member engagement, but few signs of a reduction in fees.

Total funds in KiwiSaver for the 2019 period were just over $57 billion dollars – up 17% from last year – while the number of KiwiSaver members has risen to more than 2.9 million, up 3%.

KiwiSaver annual report 2019 facts at a glanceFMA Director of Regulation Liam Mason said KiwiSaver continued to expand its role as an important component of New Zealand’s financial sector, with contributions, investment returns and outflows all increasing through the year ended March 2019.

The FMA report noted that six out of nine KiwiSaver default providers had improved their percentage of members who had made an active choice on their investment: “This has been a key focus for us over the past few years so it is great to see more than 52,000 default members made an active decision about their investment over the past year – up significantly from just over 28,000 in the prior year.”

However, the FMA was concerned at the lack of any significant movement in fees paid to KiwiSaver providers. In total, KiwiSaver providers collected almost $480 million in fees, up 14.7% on last year. “We have previously said we were surprised costs per member had not fallen faster, given the growth in funds under management,” said Mr Mason.

The FMA will be asking KiwiSaver providers to demonstrate how they are providing value for money for members.

Research prepared for the FMA by Melville Jessup Weaver, also published today, has suggested fees charged by KiwiSaver providers are high compared to broadly similar funds in the UK.
“We are concerned that the benefits of scale, at least for the larger providers, are not being passed on to investors,” said Mr Mason.

“Over the coming year, we will be asking KiwiSaver providers to demonstrate how they are providing value for money for members. This includes explaining investment styles and how higher fees are justified for services such as active fund management or responsible investment strategies.”

Mr Mason said the report confirmed the increasing importance of KiwiSaver in supporting New Zealanders’ retirement and helping them buy their first homes.
The amount of money withdrawn by people over 65 topped $1 billion for the first time. A further $953 million was withdrawn by members buying their first home.

Other key facts highlighted in the report include:

  • Total assets grew by $8.4 billion to $57 billion, up 17%. Of this, investment returns made up $3.8 billion, increasing by $600 million (19%) on the prior year. This lift in returns was achieved despite turbulence in global financial markets at the end of 2018.
  • The default schemes’ total assets fell to $4.4 billion, from $4.7 billion the prior year, with their share of assets continuing to slide, from 9.6% in the prior year to 7.6%.
  • The average member’s balance was $19,426, an increase of 13.4% on the prior year’s average. The average management fee paid by members was $132, increasing in line with the average balance.
  • Withdrawals for those aged 65 and over were up 43% to just over $1 billion.
  • KiwiSaver providers reported 199,307 scheme transfers during the year, a 5% increase. This number does include people moving from a default fund to another fund in their scheme.

Related

Reports and papers: KiwiSaver report