KiwiSaver Fees - WEP?

An older gentleman I used to work with had a joke every time the payslips were handed around.   Holding up his payslip, he would look confused and say "does anyone else have this code WEP on their slip?". He would then inspect the small print and "ah! it's all right...it's explained here...it means Worth Every Penny".    I guess you had to be there.

Most of us don't really assess whether KiwiSaver fees really are worth every penny (cent) - especially in the early days when there's nothing much in there.   With financial products like KiwiSaver, fees just kinda happen.   They are deducted from the fund as it builds.   Besides, aren't they all about the same?

Those that have seen my Quick Guide to KiwiSaver Fees here will have noticed that KiwiSaver providers do charge different levels of fees.  It's a competitive world - and there's nothing wrong with that.   KiwiSavers can change provider very easily.

What the Sorted fee calculator shows us is that likely impact on your balance at age 65.    In the example on the video, the fee range is from 14.5% to 4.6%.    So if you build up a fund of $200,000, you might have paid $29,000 in fees.   Or if you were with a different provider, you might have paid only $9,200.    Both figures seem high...especially when investment statements tend to express the fees in terms of the annual %  fee charge, which is usually under 1% .  

What's happening here is just mathematics.   As you build up funds, growth happens on the growth.  This compounding growth is like a cartoon snowball rolling down a hill, getting ever bigger by its own momentum, which makes your fund much larger.    Happy days for your fund.    Yet...the same principle also applies to the fees that are taken away.  

If you are paying higher fees, you need to be confident that you are getting value for money.   Sorted cannot predict which provider or scheme is going to be the best at growing your money (no-one can).

So we turn to the things we can control.   In KiwiSaver, it's the level of fees you pay.    Now, your  provider can't just reduce the fees for you because they think you're great.    If they did that, they would probably have to it for every member. 

Using Sorted, you can compare against other providers - even other funds with the same provider - and see whether you are happy with the fee levels.
 
The good news is that some new regulations over fee disclosures are on their way.    The fees will be explained far more clearly with effect from April 2013 - across the board.  So look out for the publicity around that and make sure that you are happy with the fees being charged by your provider. 

If you have been in KiwiSaver for a few years, your snowball is well on its way.  So the fee levels are beginning to make a bigger difference.