By Amanda Morrall
1) For the clueless.
Start with the basics by learning what KiwiSaver is, how it works, your contributions levels and the terms and conditions by visiting the official KiwiSaver Website. You'll find all the basics covered here including methods of joining, how to opt out, a primer on providers and schemes and the benefits of KiwiSaver. This is a good place to start.
2) I'm in, now what?
If you're enrolled in KiwiSaver but didn't make an active selection with whom to invest, you'll have been randomly allocated a default provider as well as have been put into a default fund. Don't know the difference between a default fund from growth fund? Visit interest.co.nz's KiwiSaver section here for a primer on the different funds on offer and what distinguishes them from one another.
3) Tracking your funds
By law, your KiwiSaver provider is required to send you an annual statement with your balance and a report on how your fund is doing. At present, there is no universal standard for reporting, so there is no consistency among providers about what information is communicated or how. That will change next year when new regulations come in place. In the meantime, most providers offer member services on-line where you can check up on your fund. You can also get a breakdown of how much you have paid into your account, your employer contributions and Government tax credits on the IRD Website which includes your KiwiSaver records. Log-in to the IRD Website and KiwiSaver should appear in the top right hand corner.
You can also get to the same place through the KiwiSaver Website which has a log-in on the right hand side of the page.
IRD also launched a mobile app recently, if you have a smart phone or table you can also keep tabs on your KiwiSaver account that way.
4) Monitoring your performance
How can you tell if your provider is doing a good job? This is a subjective question and takes into account a range of factors; including performance, fees and communication.On the question of performance, it's hard to know unless you have a reference point. It's important to remember to compare like with like. If you're invested in a conservative fund, it would be unfair to compare your performance to a growth fund because the asset allocation differs starkly. Morningstar New Zealand produces quarterly reports on KiwiSaver where you can find out how funds across the market have fared over a one, three and four years. You'll also be able to see what your expense ratio is (see expense ratio explained below), your annual fee and the percentage of growth assets in your portfolio.This is an excellent resource for those wanting to up their KiwiSaver game and expand their knowledge.
Interest.co.nz produces similar reports and ranks the various providers by performance.
Each KiwiSaver scheme has its own particular way of charging for its services, and it can be confusing comparing and navigating your way though these fees.
Almost all schemes charge a fixed membership fee, plus an investment management fee which pays for the 'expertise' of the investment manager. The more volatile the asset class invested in, or the more active the investment management, the higher the investment management fee. In a number of cases additional performance-based fees are also be charged if performance exceeds some specified benchmark.
Other types of common fees include trustee fees and administration fees. You can find a full breakdown of fees in each fund's profile. And all funds also charge for expenses specific to the fund - things like the audit fee. These can vary significantly.
In other countries, investment vehicles are required to publish a 'management expense ratio' (usually known as the MER) which captures the total fee and expense burden on the fund. There is no such requirement currently in New Zealand for KiwiSaver funds to publish their MER.
However, we are calculating something very similar, an overall Expense Ratio using the fees and charges listed in the investment statement and the expenses from the scheme's latest annual report. Using the Expense Ratio and knowing what is included in the fund-reported returns enables us to re-calculate the fund-reported returns so they are on a consistent, comparable basis. Click here for how we calculate performance.
Our Expense Ratio includes the fixed dollar 'membership' fee that almost all funds charges. Although only averaging around $35 a year, that is equivalent to a fee of more than 0.5% for an average KiwiSaver balance of $6,600 - and this was the actual average as at September 2010. We have included this fee on the basis of a $10,000 balance.
Future investment performance is never certain, so it makes sense to take a close look at fees. You can get a feel for how much fees can eat away at investment returns by playing with this calculator.
Returns on KiwiSaver are variable. Fees aren't. In addition to the annual membership fee charged, you'll pay a host of other fees, the most expensive of which is the investment management fee. You'll only know if the fees you are paying are unreasonably high relative to what others are charging. Again, it's important to compare like with like. In general terms the fees charged on growth funds are higher than conservative funds. For a basis of comparison, you can Find your Fund on interest.co.nz. They are listed alphabetically and categorised by type of fund, or you can look it up by name in the boxed area.
Once you have found your fund, there is an option in the table menu to "see other funds like this." This will group the various funds by peer group and allow you to see what the others are charging in term of the expense ratio. There is a large variance. For example, SuperLife AIM 80 Pool (an aggressive fund) charges an expense ratio of 0.81% and the Law Retirement Plan Dynamic Portfolio charge 1.91%. It could be that the performance justifies the higher than average fee, but again you'll only know by seeing how other funds have fared over the years.
For other questions on KiwiSaver, see our Q&A section here which contains questions from our readers.
To read other Take Fives by Amanda Morrall click here. You can also follow Amanda on Twitter @amandamorrall