KiwiSaver fees explained – price, value and the after-fees test

Every KiwiSaver fund charges fees – it’s how the professional management of your money gets paid for. Fees deserve your attention because they’re charged every year on your whole balance. But the question that actually matters isn’t “which fund is cheapest?” It’s “am I getting value for what I pay?” – and those are very different questions.

The one habit that matters most: judge returns after fees

Whenever you look at a fund’s returns – in an ad, a news story, a comparison site, anywhere – the first thing to check is whether the figure is before or after fees. A fund quoting impressive before-fees returns tells you very little about what you’d actually have kept.

The clean way to compare funds is simple: after-fee returns, over long periods, at the same risk level. Once fees are already subtracted from the return, the fee question has effectively answered itself – whatever a fund charged, you’re looking at what investors actually received.

That’s how we do it at Investment People: the figures we use come from the Morningstar KiwiSaver Survey and are always after fees. When our Mind the Gap tool compares your fund with a top performer in the same risk category, fees are already accounted for on both sides.

What fees pay for

A fund’s annual charge covers investment management, administration, custody, audit and compliance. How much management you’re paying for depends on the fund’s approach:

• Index (tracker) funds aim to match a market index. There’s less to do, so fees are low – and for many investors that simplicity is a perfectly good deal.
• Active funds employ teams who research companies, adjust the portfolio as conditions change, and often work to manage the downside in falling markets. That costs more – and the point of paying it is the outcome: some active managers have long after-fee track records that have more than justified their fee.

Neither approach is “right”. A low fee spent on a fund that persistently lags its risk category isn’t a bargain, and a higher fee that has bought consistently strong after-fee results isn’t a rip-off. Cheap and expensive are facts about price; good and poor value are judgements about what you got for it.

Performance fees, explained calmly

Some actively managed funds charge a performance fee on top of their base fee. It sounds alarming until you see how it works: a performance fee is typically only charged when the fund beats a stated target, and usually only above a high-water mark – meaning the manager can’t charge it again for re-gaining ground previously lost. Many are capped as well.

Structured that way, a performance fee aligns the manager’s interests with yours: they earn more only in the years you’ve done well. When you’re comparing funds, the estimated total fee (including any expected performance fee) is disclosed in the fund’s documents – and in after-fee return figures, it has already been paid before the number you’re looking at.

Questions worth asking about any fund’s fee

• Is this return figure before or after fees? (Always resolve this first.)
• Over the long term, what has this fund returned after fees compared with other funds at the same risk level?
• What does the fee buy – index tracking, or active management with a track record I can inspect?
• If there’s a performance fee, when does it trigger, is there a high-water mark, and is it capped?

Where fees genuinely go wrong

The fee problems worth fixing are specific ones: paying active-level fees for a fund that has behaved like an index fund; sitting in a fund whose after-fee returns have persistently trailed its risk category; or simply not knowing what you’re paying at all. Those are value problems, not price problems – and they’re exactly the kind of thing a review picks up.

Have your fund’s fees and returns checked

We’ll show you what your fund has charged, what it has returned after fees against its peers, and whether you’re getting value – whichever way the answer falls. Book a KiwiSaver review, or start with the 30-second Mind the Gap check.