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Time to exit unnecessary fees

One of the things that has made KiwiSaver successful is that it is refreshingly free from the hooks and barbs of hidden charges that have traditionally bedeviled the investment industry. Or so one would hope. Unfortunately, old practices die hard.

Monday, July 29th 2019, 8:04AM

by Michael Lang

Michael Lang

All schemes must follow the same set of modern, competitive rules. Fees are regulated and transparent, and disclosed in a way that enables easy comparison. Right? Wrong!

In ASSET magazine’s April issue, we revealed that one KiwiSaver manager was using a publicly issued income fund to provide a related party loan in order to leverage its KiwiSaver fund. This month we raise the curtain on exit fees. 


An exit fee or redemption fee is a charge imposed on an investor who wants to switch KiwiSaver schemes. In the old unit trusts’ world this was called a back-end loaded fund. Regardless of the terminology, the effect of an exit fee is that it reduces the value of your KiwiSaver if you wish to withdraw or switch.


Exit fees come in different shapes and sizes. They can be paid to the scheme to compensate the remaining members for the transaction costs incurred in funding the member’s withdrawal. So long as these charges are disclosed before an investor enters the fund, they are usually in line with investors’ sense of fairness. This is the case with the Nikko AM KiwiSaver Scheme that charges a modest entry and exit spread. 

Unfortunately, this is not the case in all KiwiSaver schemes. Of the four KiwiSaver schemes that have chosen to charge exit fees, three of the scheme managers or administrators pocket the fee instead of paying it back into the fund. As KiwiSaver members already pay an annual member fee (deducted monthly) to cover the cost of administering their account, it is difficult to understand what the justification for the fee is.


Exit fees are not taken into account by Sorted when ranking KiwiSaver schemes by cost on its KiwiSaver Fund Finder or in its KiwiSaver fees calculator.

A scheme’s Product Disclosure Statement (PDS) is the defining legal document for a scheme and must set out all fees and charges. Those managers who choose to charge an exit fee must disclose it here.

However, even within the PDS, the regulatory required section “Example of how fees apply to an investor” focuses on the costs incurred on entering and being a member of the scheme. Nowhere in the PDS is there an example of the costs associated with exiting the scheme.


The Aon KiwiSaver Scheme charges $35.00 to transfer to another scheme, while the Booster KiwiSaver Scheme charges $30.00 to close a non-default KiwiSaver account, which occurs whenever you transfer to another scheme.

The Craigs KiwiSaver Scheme charges up to 1.25% brokerage on both exit and entry, in addition to its 1.25% management fee. The Nikko AM KiwiSaver Scheme charges entry and exit spreads but, as discussed, these amounts are paid back to the scheme. To the best of NZ Funds’ knowledge, no other schemes charge these one-off fees.

Interestingly, there are no exit fees in default schemes. However, the current regulatory regime allows the same manager to impose exit fees on its non-default KiwiSaver Scheme members.


The easiest way to avoid paying exit fees is to not invest in a scheme which charges them. Simply ask your adviser what the costs are of transferring to another scheme. You will find that most KiwiSaver schemes have no additional costs.

Alternatively, if you are a DIY investor, the PDS is the best place to go. 


Exit fees may appear small in isolation, at around $30.00 per scheme transfer, however they are just another fee investors need to worry about. In the year ended March 2018, 117,274 KiwiSaver members transferred from one active scheme to another. This has the potential of adding an
unnecessary friction cost of $3.5 million a year to a concept that is otherwise doing wonders for New Zealanders.

NZ Funds KiwiSaver Scheme is designed for use by AFAs and RFAs and charges neither an entry fee nor an exit fee. NZ Funds pays advisers both planning incentives and an ongoing commission for advice. 96% of NZ Funds’ KiwiSaver members have a financial adviser. The average balance of members of the Scheme is $27,194 (approximately one and a half times the national average of $17,834).

Michael Lang is Chief Executive at NZ Funds. New Zealand Funds Management is the issuer of the NZ Funds KiwiSaver Scheme.

Tags: KiwiSaver

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