Fees compound: the silent KiwiSaver tax that costs more than IRD

The single most under-appreciated number in KiwiSaver is the fee. Not because it's hidden. providers disclose it. but because the cost compounds, and the human brain isn't wired to feel that.

The math, plain

Take two identical funds, same gross return of 7%/year. Fund A charges 0.5% in fees. Fund B charges 1.5%. You start with $60,000 and contribute $5,000 a year for 30 years.

• Fund A (0.5% fees): ends at ~$870,000
• Fund B (1.5% fees): ends at ~$715,000

Same contributions, same returns, same time. $155,000 difference. paid to the fund manager.

Why the gap is so big

Fees aren't taken out as a flat dollar amount. They're a percentage of your balance. So as your balance grows over decades, the dollar amount of fees grows too. and that money never compounds for you. It compounds for the fund manager instead.

What's "high" in NZ?

In NZ KiwiSaver, total annual fees range from about 0.20% (passive index funds like Simplicity, Kernel) to 1.50%+ (active funds like Milford, Generate, NZ Funds).

The trade-off: active managers say they earn the fees by beating the market. Sometimes they do. Often they don't. Look at the 10-year track record before deciding.

What to do

• Run the Fee Impact calculator with your actual numbers. see your gap.
• Browse the lowest-fee KiwiSaver funds in NZ.
• If your fund's fees are above 1.2% AND its 10-year return isn't above the band average, switching is a no-brainer.

Source: Morningstar KiwiSaver 360 and Sorted Smart Investor, fees and net-of-fee returns. Past performance is not indicative of future returns. General information only. not personal financial advice.