Getting your UK pension to New Zealand probably seemed like mission at the time, so you don’t have a desire to revisit that pain again in a hurry. But there are two startling issues that should have everyone dusting off their New Zealand Scheme pension documents to see if they are getting a fair deal:
- Schemes being run by the same people are charging massively different costs across those schemes
- Sometimes getting exactly the same investments can cost 60% more in one scheme compared with another
Being involved in either of these situations is burning money, and burning money is totally unnecessary.
Same scheme operator milking more costs from one of their schemes when compared to their other
Bear with us on this one as there’s a little bit of math involved, so the story’s not as easy to tell. This is about one New Zealand company that has three pension schemes that have received UK pension transfers into them over the years (two of the schemes are no longer accepting new members and one is).
Now, there were a few rule changes that came about before they set up their third and newest scheme (the only one that is open to new members). The changes required them to be more upfront about the fees that were charged. Well what a surprise, the newly opened scheme fees are heaps lower. How much lower? Well the balanced funds in the old schemes the annual charges are 2.25% a year for the balanced funds in the new scheme the fees are 1.5% a year. That’s a whole 33% lower.
Get a new car for free – easy as
The average Joe or Jane has $120,000 invested in balanced funds in the old schemes mentioned above. If they switched into the new scheme alone they would, over the course of 15 years, save the cost of a small car ($23,500). So that’s the cost of complacency. Not to mention there are often even better deals in the market.
Same investment – massive difference in the cost of making it
If a loaf of Tip-Top bread cost $3.04 at one supermarket and $1.82 at another you’d much rather pay $1.82 right. Exactly the same coast conscious approach should apply to investments
Again, let’s look at a specific example to understand this. Someone wants to invest in a Milford balanced fund (that’s the bread), Milford don’t have their own superannuation scheme (supermarket), so you’ll have to buy their funds through someone elses superannuation scheme (supermarket).
So we went shopping to look at the costs of exactly the same Milford funds funds at two different superannuation schemes. You would think that the costs wouldn’t be that different? Guess again… there was a huge difference in costs between schemes.
Start thinking European car…
Just getting into the right scheme with the right fee structure could save $68,000 over 15 years (have a peek at the results in the table below). So the choice is making your New Zealand superannuation scheme manager rich or yourself rich, we know which one we would choose.
|Scheme 1||Scheme 2|
|Value of $100,000 investment after 15 years of average returns||$368,000||$436,000|
Basically, this all tells us, what might have felt like the right decision at the time needs to be constantly re-assessed in the light of the evolving New Zealand superannuation industry. So don’t sit on your hands anymore, get in touch with us today.