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Three wrongs don't make a right: Why KiwiSaver exit fees should be banned


Sam Arora, a KiwiSaver member, recently drew public attention to a $100 fee he would be charged to leave his provider, SuperLife, and join another scheme. See full press coverage here.

Like all KiwiSaver schemes, SuperLife charges no entry fees, but is very unusual in charging $100 to leave. Only 3 of 16 schemes charge members any fees to leave.

The key reason given for the fee is that other scheme members have to bear the cost of processing his exit, and that these costs which might not have been recovered from the low fees Mr Aurora paid while in the scheme.

Here's why that logic is seriously flawed, and exit fees for KiwiSaver are simply wrong.

The spirit of KiwiSaver is to allow choice of provider and easy switching. Charging nothing to join, which is the case with every provider, embraces this spirit. Charging $100 to leave clearly doesn't. It's the equivalent of being welcomed with open arms by the host to a party, only to have them throw drinks in your face because you choose to leave.

Exit fees are not what most KiwiSavers want either. 85% in a recent 'Stuff' poll said exit fees were wrong. They're right.

And why $100? Unless the provider in question still uses Morse code and carrier pigeons, we can't see how it reflects the actual cost of switching. The work in someone changing KiwiSaver schemes is largely done by the IRD, at no cost to anyone. There's simply nothing like $100 worth of effort. 13 of 16 schemes charge nothing.

And if they argue that there are specific costs in joining and leaving that members should pay for, it's surely more logical to charge $50 to enter the scheme, and $50 to exit. No prizes for guessing why they don't do that.

And if, as argued, SuperLife management and membership fees are so low that exit fees need to be charged, how come schemes that charge even lower overall fees don't charge members to exit?

Charging someone $100 to exit KiwiSaver is like term deposit and mortgage break fees. It's excessive and just wrong, wrong, wrong. And three wrongs, the providers here charging, don't make a right.

KiwiSaver fees need to be seen to be fair and reasonable. In our opinion exit fees do not meet this test, full stop. They are practices from the last century, and undermine the principles of choice and fairness that are the very heart of KiwiSaver.

I'll do SuperLife deal. I will personally pay the $100 exit fee they want to charge Mr Arora to exit their KiwiSaver, if they then donate it to the Simplicity Charitable Trust, which is focused on education related causes. Freedom, choice and KiwiSaver will be the winners.%)