One of the most persistent debates in NZ KiwiSaver is whether you should prioritise the cheapest fund or the best-performing fund. The fee advocates point to compounding cost drag. The performance advocates point to Milford’s track record. Both sides have a case — here’s how to think through it correctly.
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The Core Tension
The fee argument: Fees compound just like returns do. A 1% annual fee on $100,000 costs $1,000 in year one — but over 30 years, the compounding effect of that annual drag is enormous. Passive index funds (like Simplicity at 0.31%) lock in near-market returns minus a tiny cost.
The performance argument: If an active fund outperforms an index fund by more than its fee premium after fees, you’re better off in the active fund. Milford has done this over 5 years — delivering ~1 percentage point more per year than Simplicity after all fees.
Both arguments are correct in their own terms. The question is which one dominates in the NZ context.
The Data: Fees vs Returns in NZ KiwiSaver
Let’s run the numbers on the three most commonly compared positions:
Growth fund comparison (indicative 5-year after-fee returns, to December 2025):
| Provider | Fee | 5-yr return (after fees) | Net return (return minus fee) |
|---|---|---|---|
| Simplicity | 0.31% | ~8.5% | ~8.19% |
| Milford | ~0.95% | ~9.8% | ~8.85% |
| ANZ | ~1.06% | ~7.5% | ~6.44% |
| Fisher Funds | ~1.35% | ~7.4% | ~6.05% |
| BNZ | ~0.48% | ~8.2% | ~7.72% |
The “net return minus fee” column is illustrative — fees are already deducted from the after-fee returns, so the actual member outcome is the “5-yr return” column. The point of the calculation is to show gross alpha (before fees) required for active managers to justify their cost.
On a $100,000 balance over 10 years:
| Provider | 10-year projection | Difference vs Simplicity |
|---|---|---|
| Simplicity at 8.5% | ~$226,000 | Baseline |
| Milford at 9.8% | ~$255,000 | +$29,000 |
| ANZ at 7.5% | ~$206,000 | -$20,000 |
| Fisher Funds at 7.4% | ~$204,000 | -$22,000 |
The data shows two distinct categories:
- Milford: Has outperformed Simplicity after fees — meaning active management has paid off
- ANZ and Fisher Funds: Have underperformed Simplicity after fees — meaning their active management has cost members money
When Low Cost Wins
The global evidence — from Morningstar, S&P SPIVA reports, and academic research — shows that the majority of actively managed funds underperform their index benchmark after fees over 10+ year periods. This is the foundation of the low-cost passive investing argument.
Low cost wins when:
- The active manager fails to generate enough gross return to offset their fee premium
- You are investing over a very long horizon (20+ years) where fee drag compounds heavily
- You have a very large balance (where fee differences in dollar terms are significant)
- You cannot reliably identify in advance which active managers will outperform
In the NZ context, ANZ and Fisher Funds are examples where low cost (passive/Simplicity) wins clearly.
When Best Performing Wins
Active management can justify higher fees when it delivers persistent, sustainable outperformance. In NZ, Milford is the primary example.
Best performing (active) wins when:
- The active manager has a genuine, durable edge — not just luck in one period
- The fee premium is modest relative to the performance premium (Milford’s ~0.65% fee premium vs ~1.3% performance premium = positive outcome)
- You can monitor the performance regularly and switch if outperformance reverses
The key risk: Past performance does not guarantee future results. Milford’s 5-year edge could narrow or reverse as:
- Its fund grows larger (reducing ability to act nimbly)
- Key personnel change
- Market conditions shift to favour international index exposure over NZ/AU active picking
The Framework: How to Decide
Step 1: Filter by fee tier
Eliminate providers with fees above ~1.0% that have not demonstrated after-fee outperformance. This removes ANZ growth (1.06%), ASB growth (~1.0%), Fisher Funds (1.20%+), and Westpac from serious contention.
Step 2: Compare after-fee returns in your fund category
Use 5-year after-fee data from the FMA annual report or Sorted Fund Finder — not 1-year returns.
Step 3: Ask the sustainability question
For active managers: is there a structural reason this performance will continue? For Milford, the honest answer is “possibly — but less certain than it was when they were smaller.”
Step 4: Consider your balance and time horizon
- Balance under $30,000: fee difference in dollar terms is modest; performance difference matters more
- Balance over $100,000: fee difference in dollar terms is significant; both matter
- Under 10 years to retirement: lower-risk fund type matters more than manager choice
- Over 20 years to retirement: fee compounding has maximum impact
The Verdict
There is no universal winner between cheapest and best-performing. It depends on which active managers are in front.
Currently:
- Simplicity (cheapest) beats ANZ, Fisher Funds, and Westpac — low cost wins against these underperforming active managers
- Milford (best-performing active) has beaten Simplicity after fees — active management has paid off here
- The spread between Milford and Simplicity is roughly $29,000 on $100,000 over 10 years — meaningful but not overwhelming
Our recommendation: Review both fee and 5-year after-fee performance. Don’t choose the cheapest without checking performance; don’t choose the highest performer without checking if the fee is justified.
Frequently Asked Questions
Should I just choose the cheapest KiwiSaver fund? Not automatically. The cheapest fund (Simplicity at 0.31%) has beaten most of the market — but Milford has beaten Simplicity after fees over the past 5 years. Use both fee and 5-year after-fee return data to decide.
Is it worth paying more for an active manager? Only if that manager has a demonstrated track record of after-fee outperformance. In NZ, Milford and Generate have delivered this. ANZ and Fisher Funds have not.
How often should I compare fees and performance? Check your KiwiSaver provider once a year — around July–August when the FMA annual report is published. Major review every 3 years is reasonable for most members.
Does the fee difference matter less when I’m young with a small balance? On a $10,000 balance, the annual fee difference between Simplicity and ANZ is only $75. The performance difference matters more. As your balance grows, fees become progressively more significant.
What to Read Next
- Simplicity vs Milford KiwiSaver — the head-to-head passive vs active comparison
- KiwiSaver Fees Comparison — all providers ranked by fee
- Best Performing KiwiSaver Funds NZ — ranked 5-year performance tables
- Cheapest KiwiSaver Fund NZ — the lowest-fee options explained
- Bank vs Independent KiwiSaver NZ — the broader comparison framework
- Milford KiwiSaver Review — full Milford analysis
- Switching KiwiSaver Providers — how to change providers