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ANZ's OnePath KiwiSaver scheme cuts member fee to align with bank scheme; devil in the detail as more aggressive investors with larger balances worse off

Investing
ANZ's OnePath KiwiSaver scheme cuts member fee to align with bank scheme; devil in the detail as more aggressive investors with larger balances worse off
Regular contributions change the way you should look at your KiwiSaver returns. <a href="http://www.shutterstock.com/">Image sourced from Shutterstock.com</a>

By Craig Simpson

I have been writing for some time now in my quarterly review of the various ANZ branded KiwiSaver schemes that I expect ANZ will eventually consolidate their offerings into one master scheme.

ANZ moved one step closer to my vision during the week by cutting the ANZ OnePath KiwiSaver scheme member fee from $2.75 per month to $2 per month ($24 p.a.), and aligning this fee with the bank's main scheme. Also the OnePath name has been dropped and the scheme rebranded to ANZ Default KiwiSaver scheme.

ANZ Default KiwiSaver scheme Conservative Fund is a member of the elite group of 9 who have been appointed to share in the pool of "free money" each month from Inland Revenue (IRD). Any new investor who does not select a provider when they join is automatically allocated to one of the default providers by IRD. For those new members the fee reduction will come as a nice surprise.

Another major change has seen the ANZ Default KiwiSaver manager abandon their passive asset allocation strategy and adopt a more, what the industry would call, tactical or dynamic strategy. This allows ANZ's investment team to be more agile with their strategy and regularly tweak their exposures to the various asset classes (bonds, shares, property etc) based on their views around markets. This change aligns the portfolio management style with ANZ's in-house scheme.

When you take a more active approach in portfolio management there are extra fees and ANZ Default KiwiSaver scheme management fees have increased, effective July 1, 2014.

ANZ believes the new approach and fee structure will be better for investors and should deliver improved returns. The investment strategy may take a while to bed down and for improvements in returns to show through.

Running the numbers

I ran some numbers on the back of an envelope based simply on the fees to see what benefits in dollar terms investors would receive. I assumed I had a balance of $10,000 and was in a Growth Fund. A few things didn't add up so I emailed ANZ asking for clarification on how a member would be better off under the new scheme.

ANZ have responded to my query. In a nutshell they have based their data on the average balance of KiwiSaver accounts as reported by the Ministry for Business Innovation and Employment (MBIE). The average member balance used in ANZ's calculations is $7000 per member. Ninety five percent of ANZ's Default KiwiSaver members are actually in the Conservative Fund, so when you take this into account along with the lower balance an investor is going to be better of by $5.50 per annum (see table below).

ANZ in their response add they believe the change to management style should bring about an improvement in returns. Based on data since inception (as at 30 April 2014) provided by ANZ, the bank's own in-house scheme (ANZ KiwiSaver Scheme) is out-performing the equivalent ANZ Default KiwiSaver fund by a reasonable margin on an after fees but before tax basis. This out-performance will be a combination of fees and asset allocation variances between the two schemes.

So, if ANZ Default KiwiSaver schemes (ex ANZ OnePath) have been performing below the bank's main KiwiSaver scheme, and now the funds have similar fee and asset allocation strategies, I am left wondering why I would stay invested in the Default KiwiSaver scheme when I can do better in the main ANZ KiwiSaver scheme?

In my world, I see this as a fairly solid argument towards consolidating these two offerings.   

Here is the fee comparisons across the various funds under the old and new structure. I think it's the final column which is key as it outlines the dollar benefit or cost to ANZ Default KiwiSaver scheme members on a per annum basis.

ANZ Default KiwiSaver Scheme Old New Fund Fee (old) ($) Fund Fee (new) ($) Member Fee (old) ($) p.a. Member Fee (new) ($) p.a.  Benefit to investor of new fees ($) p.a.
Conservative Fund 0.55% 0.60% 38.50 42.00 33.00 24.00 +5.50
Conservative Balanced Fund 0.60% 1.00% 42.00 70.00 33.00 24.00 -19.00
Balanced Fund 0.65% 1.05% 45.50 73.50 33.00 24.00 -19.00
Balanced Growth Fund 0.70% 1.10% 49.00 77.00 33.00 24.00 -19.00
Growth Fund 0.75% 1.15% 52.50 80.50 33.00 24.00 -19.00

ANZ say investors with a balance of under $18,000 will have lower fees following these changes - they are of course referring to the 95% invested in the Conservative Fund.

It will be a matter of time to see whether the changes ANZ have made to the old OnePath scheme make any difference, and I will be following their developments with interest and looking for more hints of further consolidation across the stable of funds.

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1 Comments

I see Amp is doing this also, so who isnt? .. I thought all fees and expenses would start to come down as more joind kwisaver, at lest someone is making money its not the members

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