Personal finance editor Amanda Morrall looks at kids in KiwiSaver and the problem of stagnating accounts threatened by fees and low returns

By Amanda Morrall

More than $300 million of taxpayers money invested in the form of $1,000 kickstarts for junior KiwiSavers is at risk of slow erosion due to stagnant balances being eaten away by fees.

Although Inland Revenue does not track the number of non-contributing junior accounts (that is those under the age of 18) providers say the vast majority are idling at just over or under the $1,000 mark because no contributions have been made other than the $1,000 kick-start received at the time of enrolment.

ANZ Wealth's David Boyle, who oversees KiwiSaver schemes run by OnePath, said balances among the 90,000 junior KiwiSavers with the default provider ranged between $950 and $1,250 owing to the fact that parents weren't adding to the accounts.  He said it was unfortunate more parents weren't taking better advantage of the scheme to build their children's retirement savings funds or help set them up for the purchase of a first time home.

"You have to remember this is a retirement savings scheme, first and foremost, that's what it was set up for but most parents seems to have just forgotten about it since collecting the $1,000 kick-start.''

Because fees on different KiwiSaver funds vary so widely, some balances will have gained while others have lost. It also depends on the rates of return generated by those funds over the period of time invested.

Boyle said the balances on junior KiwiSavers with OnePath were relatively strong given the markets have been so volatile since the retirement savings programme was rolled out in 2007. He said one of the reasons they stood up as well as they have was that the fees were so modest. OnePath charges an annual fee of $26 in addition to a management expense ratio which differs according to which type of fund a person is invested in.

According to the 2011 KiwiSaver report produced by Inland Revenue there were (as of March 31, 2011) 3,948 kids under the 18 enrolled in default funds and 291,058 in "other funds.'' 

In general terms, default funds have the lowest fees because they are conservative in nature; that is they are compromised mainly of cash and fixed-interest assets such as bonds. The rationale for the lower fee is that they take less time and skill to manage. That compares to higher risk growth and aggressive funds, which have a higher weighting of shares and which are "actively managed.'' 

In addition to the annual membership fees, which can vary from $26 to $60 a year, there are a host of other fees, the most costly being the investment management fee sometimes known as the management expense ratio (MER). This is a set percentage which comes off your total balance every year regardless of the fund's performance up or down.

To find your fund, check out interest.co.nz's Find Your Fund section here. From there you can look up how much you are paying in fees, and compare it to other like funds. See also your fund's performance ranking for its peer group here.

To see the long-term effect of contributing and non-contributing to that account, taking into account fees and returns either negative or positive, check out our contributions calculator below, which downloads as an excel spread sheet so you can manipulate the variables to match your own experience in KiwiSaver.