Kiwisaver – Need advice!

Calling on all you PF/math/Kiwisaver experts to throw your thoughts in the ring.

Here’s how it is: One Kiwisaver account. Current balance is just over 1000, thanks to the govt. kickstart. No foreseeable future employer contributions. We will try to contribute (probably irregularly, and in minimal amounts, but really can’t promise anything). Main goal is probably just not to lose too much money. I’ve done a quick comparison of rates and fees from various providers – some from default funds and some from balanced funds, as below. Given the small account balance, I’m thinking it’s better to go with the lower annual rate and the higher percentage fees.

Flat $50p/a
$30p/a, plus 0.37% in fees
$36p/a, plus 0.55% in fees
$34.20p/a, plus 0.75% in fees
$24p/a, plus plus 0.965% in fees

Untitled

(I did include some other providers, Fidelity, Tower and Grosvenor to name a few. But in the narrowing down process I eliminated them from the chart.)

Recommendations?

9 thoughts on “Kiwisaver – Need advice!

  • Reply Sense August 20, 2009 at 00:12

    Doesn’t the gov’t pay the fees (up to $40/year)? Or is that just for the first year?

    I am about to embark on my own kiwisaver comparison, so unfortunately i can’t help much. but yeah, if the gov’t isn’t paying the fees, your plan sounds good!

  • Reply Elijah August 20, 2009 at 08:40

    Your focus on fees is going to leave you short possibly hundred’s of thousand’s of dollars in your retirement. Of your final return at maturity, approximately 65% of it (if starting at ~30yrs old) will be from the investment returns of the provider you choose. So you need to be looking at things like who is investing your money, do you know them, do they have experience and a reputation of successful investments, are they investing alongside you…look at the company and it’s people not the fees.

    To be approved as a KiwiSaver provider all fees have to be fair and reasonable so they’re all much the same. The only reason some of the fees you have recorded appear low is because they use other companies to make some (or all) of their investments, which obviously they won’t be doing for free, so there’s another layer of fees involved which don’t have to be disclosed.

    All of those companies you have listed have made significant losses in their growth and balanced funds and barely managed to stay close to even in conservative funds since the inception of KiwiSaver. As institutional investors they don’t have the investment flexibility to have outstanding returns so even if fees were significantly different between companies it would make sense that you’d prefer to pay higher fees on a performing company than lower fees on an underperforming company wouldn’t it? Don’t forget how much of your retirement savings comes from investment returns.

    An example:
    A 20 year old joins, gets the $1,000 kickstart, is studying so doesn’t work for a year after which he/she’s entitled to be on a contributions holiday and decides when work starts never to contribute to KiwiSaver…ever.

    At 65 on an average return of 10% he/she will have ~$72,890
    At 65 on an average return of 8% he/she will have ~$31,920
    At 65 on an average return of 6% he/she will have ~$13,765

    As you can see there are significant differences from only a small percentage change in returns. (I believe the calculator already had a fee base of ~1%included but is the same for all 3 results).

    Change your focus 🙂

  • Reply eemusings August 20, 2009 at 14:55

    @ Elijah: Thanks for your rather detailed reply, I appreciate you taking the time to do that and I’ll definitely take your insights on provider performance into consideration when I open my own account. Don’t worry, I have no problems understanding compound interest. But I’m not sure you understand. I don’t know if you grasp the fact that it’s more than likely that this account is going to remain at around the $1000 mark, possibly for up to four years. T was laid off at the start of the year and hasn’t found a permanent job since. This semester he’s doing a course and may decide to go on to degree level. (And given his work background, PT jobs are far scarcer than FT). So it’s almost certain he’ll be unable to make contributions for some time. This doesn’t leave a lot of room for investing aggressively at this stage. That will just have to come later when things stabilise and at least one of us has a FT job. Right now I just want to preserve his 1k. Therefore, as I see it, fees have to be a major concern unless the market happens to start soaring. Maybe I’m just kidding myself and should just pick one at random.

    – ps don’t know if we used the same calculator but the Fido one at the Australian Securities site is pretty neat!

    @ sense: the fee subsidy is being scrapped, to my knowledge. they just keep on tinkering with it…

  • Reply Neil Smith August 20, 2009 at 17:20

    I’ve just noticed your post, and I am here to help. I am a KiwiSaver Adviser, but I can provide you with sensible advice publicly or privately, I don’t mind. I don’t worry that your account balance is so low either. We’ve all got to start somewhere. I’ll read the posts again, and make a start for you. My service is FREE, no strings attached and I work with folks up and down the country.

    Neil Smith @mykiwisaver
    A disclosure statement is availalble, upon request and free of charge.

  • Reply Neil Smith August 20, 2009 at 17:47

    O.K. Your requirements are:
    I’ll you the royal you (as in the KiwiSaver “T”.
    1) Preserve your $1,000 until you feel you are in a better financial position.
    2) Related to that, but not mentioned here, you *may be* not a home owner!
    3) You expect to have around $1,000 in the account for some time.
    4) You’ve been looking at default (usually Conservative Funds) and also some Balanced Funds
    5) You realise that your focus on fees and stable performance may lead to lower returns in the short term but as you say your current situation, “doesn’t leave a lot of room for investing aggressively at this stage.”

    So if I could show you how to transfer that balance into an account that acts like a bank account, but it is a KiwiSaver account would that be helpful?

    Also, to give you an absolute answer to your questions and assumptions. There is no $40 annual fee subsidy. It was removed when the requirement to pay a minimum of 4% of income was removed. It was a trade off we were told.

    The cash account I am thinking of has a $24 per year fee, and a combined (all up fees) cost of 0.75% + the “trustee fee” of 0.075% So you had a chart above the showed fees of $24 + 0.975, and a variable return on investment. I am tell you about a fund with $24 + 0.825% on your $1,000. : ) Its a cash fund, so it ought to go up in value slowly. Plus, you’d get me free!

    Does that sound o.k with you?
    Message me on Twitter @mykiwisaver or check out my website,
    http://www.liferisk.co.nz/kiwisaver.html

    I’m a KiwiSaver adviser, its my job to help you. I’ve lots of clients with accounts like that.

    Regards,

    Neil Smith
    A disclosure statement is available, upon request and free of charge.

  • Reply Elijah August 21, 2009 at 07:54

    Yes you mentioned in an earlier blog that he was unlikely to be contributing for sometime, but i still don’t rate fees as an important part of the decision. An example of one of the funds from your list (unit prices taken from http://www.fundsource.co.nz):

    Gareth Morgan doesn’t unit price so too difficult to compare to other providers

    ASB Balanced Fund is currently at a unit price of 0.87 after management fees but before registry fees and tax since inception of KiwiSaver. If he had joined KiwiSaver 2 years ago and contributed nothing he would have ~$810 left. Fees of $30p/a, plus 0.37% in fees…not very well preserved, great looking (disclosed) fees though.

    Compared to one of the leading performers; if he’d joined the Huljich KiwiSaver Balanced Fund, with a unit price of $1.10 he’d have $1,038 after fees, before tax. Fees of $36p/a, plus 1.1% (management, trustee and administration) in fees

    Or the Huljich Conservative Fund since KiwiSaver began he’d have $1,102 after all fees, before tax. Fees are $36p/a, plus 0.95% in management, administration and trustee fees.

    Sure, performance can change which is why you look at the company and the people. If there’s reasons behind their successes then they’re likely to always be amongst the leaders…and hey, it’s free to transfer for almost every provider so he’s not stuck in it if there’s any dramatic changes.

    Hope that helps.

  • Reply eemusings August 21, 2009 at 15:33

    That’s right, I remember you mentioning Huljich in an earlier comment. Oh and thanks for the fundsource link – isn’t working for me right now but maybe that’s cause I’m at work. So…essentially, you’re saying unit price is an indicator of performance and therefore a higher unit price is something to be looking for?

  • Reply Elijah August 21, 2009 at 16:40

    Yeah, it’s not really just an indicator, it’s pretty much actual. Unit Price is calculated by dividing the value of the assets of the managed investment by the number of units on issue to investors.

    It allows you to get a value for a total investment portfolio without having to list returns for every single holding. It’s the most common method of measuring and comparing performance globally. Almost all managers do it.

    So yeah, performance over fees everytime, but the people behind the company that create that performance is the most important factor.

  • Reply eemusings August 21, 2009 at 18:53

    All righty. Back to the drawing board *thumps head on desk*

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