Not long ago I came across a father who had enrolled all six of his children in KiwiSaver, taking advantage of the $1,000 kick-start that the government offers for anyone getting started in the scheme. I’m sure it seemed like a great idea at the time – a way to get the kids headed in the right direction financially.

Fast-forward five years, however, and this dad was infuriated to find that their KiwiSaver provider had been charging each child $50 per year as an administration fee, which is a typical cost to run a scheme. Over that time, a quarter of the kids’ ‘savings’ had been wiped out.

‘This is gouging and predatory,’ he wrote. ‘Appropriating (stealing!) 20% of the value of these children’s accounts is opportunistic… Fair enough IF they were actively contributing but simply because they are small the $50 or 1% for EACH year is simply a rip-off.’

Is it worth setting up KiwiSaver accounts for kids?

As you can see, the issue with KiwiSaver accounts for kids is essentially the fees. KiwiSaver accounts make sense if there are regular contributions going in – from employees, employers, the government, the market returns. Kids don’t get these, so fees can quickly eat away the balances.

That being said, there are a couple of providers, Craig’s Investment Partners and Westpac, who have chosen to waive fees for kids and teens. Westpac waives their administration fee for the first year, then continues to do so as long as some contribution is made (there’s no required dollar amount).

Now it’s easier to see the fees

This past year the way that KiwiSaver providers are required to report their fees changed, so it’s now easier to find other funds, like Smartshares, that do not charge a flat fee for management or administration at all.

Our KiwiSaver fund finder is a handy tool you can use to check if fund fees are above or below average and compare.

KiwiSaver is actually rated PG: some parental guidance is recommended. It can certainly be worth setting up for the kids, but make sure you pick a fund where their balance won’t be eaten away by fees.

And if you can manage to contribute regularly – even just a small amount – KiwiSaver will work even more in their favour.