We are not a fan of high KiwiSaver fees, and for a while there wasn't much change since KiwiSaver first launched. New providers entered the market and charged 1-2-3%, depending on what they offered. With the arrival of Simplicity, we're pleased to see a lower fee point and a commitment to fee transparency. But, is Simplicity right for your retirement savings? 

Our Review
In this guide, we outline what Simplicity is, how it differs from standard KiwiSaver providers, what index funds are and how they're different to other funds, as well as looking at whether it's safe to invest in given its recent appearance as a KiwiSaver provider. We cover:

• The Specs of Simplicity (including Mortgage Rates/Home Loans)
• The Funds
• Who is Simplicity Suited to?​
• What You Need to Know
• FAQs
• ​The Competition - Simplicity vs SuperLife vs others
• What the media says about Simplicity
• The Bottom Line and Limitations
• 10 Must-Know Facts about Simplicity
• Conclusion

Please note: MoneyHub is not a Financial Adviser, and this guide has been published to explain the investment fundamentals and outline the pros and cons of Simplicity as a KiwiSaver provider.​

The Specs of Simplicity Funds (including Mortgage Rates)
​Simplicity offers four different funds, and each fund is comprised of over 3,000 different investments in 23 countries, and are 100% hedged to the NZ dollar. This means that if the NZ Dollar rises against any overseas currency, the value of the overseas investment is not diminished due to the hedging and therefore eliminating exchange rate movement as an investment risk.  
 
The fees are as followed: 

• Annual fees (which are the same for all four funds): $20 + $3.10 for every $1,000 in your account. Excluding the annual fee, the management fee is 0.31% on your invested funds. If you're under 18, this fee is waived.
• Other fees: The Guaranteed Income Fund charges an additional 1.3% for an insurance policy, which guarantees income payments.
• Transfer in and exit fees: There are no exit fees, but your existing KiwiSaver scheme provider may charge an exit fee - you'll need to contact them to find out what that is. 
• Minimum Initial Investment: $1 for all funds.

Investment Products include:

• Cash (i.e. bank deposits in New Zealand banks)
• New Zealand Fixed Income (i.e. investments in government bonds or company debt)
• New Zealand Shares (i.e. shares in Spark, Fletcher Building and Air New Zealand)
• Australian Shares 
• International Fixed Income bonds and deposits
• International Shares

Launched in October 2019, Simplicity offers best-in-market floating first home interest rates, available exclusively to its KiwiSaver scheme members. The specs include:

• Current Floating Interest Rate: 2.95%
• Fees: The loans have no break or penalty fees, and members can repay any or all of the mortgage at any time, at no extra cost. This is standard with floating interest rate mortgages.
• Loan Value: Up to 80% of the value of a first home, as long as repayments do not exceed 30% of combined after-tax income.
• Potential Savings: As an example, for a first home buyer with a $600,000 home loan, the interest savings are $6,000 in the first year alone where the interest difference is 1%. Over the life of the loan, the savings could be more than $130,000. 
• Floating vs Fixed Interest Rates: While all first home loans will be at a floating rate, members are given at least three months notice if interest rates rise. This gives borrowers time to adjust to the new rates or switch providers.

How to apply?

• Firstly, to be eligible for a Simplicity first home loan, applicants will need to have been a Simplicity KiwiSaver member for at least one year. Applicants will also need to meet the criteria of a first-time homebuyer.
• Ballot: First home loans will be offered via a ballot system run monthly.
• Simplicity members can register for the first ballot on November 1st 2019, which will be drawn in early December. Successful members will then have 6 months to find their first home.

What Funds are Available, and What's the Difference Between Them?
Simplicity KiwiSaver offers four funds - Conservative, Balanced, Growth and Guaranteed Income. Generally, the rule is that the higher the percentage invested in shares rather than cash deposits and fixed income, the riskier the investment. This is because shares fluctuate in value, whereas cash deposits don't and your investment is near-guaranteed for anything classes as cash or fixed-income.

1. Conservative Fund
This fund investments largely in fixed-income (78%) and cash (2%), leaving an exposure to the sharemarket of 20% of funds invested, with most of the risk in overseas shares. Based on this, most of the fund's return can be predicted year-on-year and this is the safest Simplicity fund currently offered.  

The fund comprises of:

• Intl Fixed Income 39%
• NZ Fixed Interest 39%
• Intl Shares 12%
• NZ Shares 4%
• Australian Shares 4%
• Cash 2%

2. Balanced Fund
This fund is a bridge between the Conservative fund above and the Growth fund below, offering a midway point for someone looking for higher returns without high risk. As such, the fund is 56% shares and 44% fixed income. 

The fund comprises of:

• Intl Shares 36%
• Intl Fixed Income 21%
• NZ Fixed Interest 21%
• NZ Shares 10%
• Australian Shares 10%
• Cash 2%

3. Growth Fund
The most aggressive fund Simplicity offers, with 86% tied up in shares in New Zealand and around the world. The return and value of this fund will depend heavily on how international sharemarkets are performing. 
 
The fund comprises of:

• Intl Shares 58%
• NZ Shares 14%
• Australian Shares 14%
• Intl Fixed Income 6%
• NZ Fixed Interest 6%
• Cash 2%

Announcement of Icehouse Ventures investments: In April 2019, Simplicity KiwiSaver announced it was allocating investor money in its Growth fund to "support start up and high growth companies" and that Simplicity expected Icehouse Ventures, its investment vehicle, "to be involved in over 50% of NZ’s start up companies". As a proportion of the fund being invested in such companies, Simplicity "expects to invest up to $100m over five years, with the total value of investments never being more than 5% of the total size of the growth fund". So, while Simplicity is offering a KiwiSaver first by investing in private New Zealand startups, its exposure is limited to a maximum of 5% of the total fund value, given the higher-risk nature of this asset class.

If investors don’t want any exposure to this particular asset class, Simplicity's alternatives include the Conservative, Balanced and Guaranteed Income funds.

4. Guaranteed Income Fund
This is a unique fund and very different from the other three KiwiSaver funds offered by Simplicity. The Guaranteed Income Fund pays the investor 5% of the fund invested, per year, at age 65 after tax and fees, for the rest of his or her life. Simplicity makes these payments on the same day as the New Zealand Superannuation/pension payment, and the payments are the same every time. The guaranteed income is paid from the fund's returns (and capital if necessary). Simplicity requires you to take out an insurance policy to guarantee the same income payments, even if your investment goes to zero. You can still access your KiwiSaver fund, and whatever is left gets paid to your estate. The minimum investment amount to participate in this fund is $50,000. 

The fund comprises of:

• Intl Shares 29%
• Intl Fixed Income 23.5%
• NZ Fixed Interest 23.5%
• Cash 8%
• NZ Shares 8%
• Australian Shares 8%

​The Claim
Simplicity advertises that it offers a "low-cost, hassle-free investment solution for KiwiSaver participants looking for low fees and safe investment". It states that it offers a “nonprofit retirement savings vehicle which charges members only what it costs to deliver”. As such, the platform is 100% online and doesn’t offer financial advisers or other industry participants commissions.
 
Is it True?
Yes. It’s new to the market but is on a mission to slash fees and deliver market-tracking results. Having formed in mid-2016, it’s funded exclusively by ex-Tower Insurance CEO Sam Stubbs who also acts as the platform’s Managing Director. Its success so far is due in large part to its marketing of ethical and low-cost index funds. These are a type of investment fund that invests in a number of securities, including from cash deposits, bonds, New Zealand shares and international shares. The more “aggressive” the fund, the higher the investment in shares. 

There are two fund managers involved. Firstly, the Simplicity team manage the New Zealand assets and are responsible for getting the lowest costs. The manager of offshore investments is Vanguard Asset Management Limited (Vanguard), the world’s second-largest fund manager. As Vanguard looks after $6 trillion in assets already around the world, Simplicity investments in Vanguard’s own funds to establish the specific portfolio diversification. This keeps costs low for Kiwi investors. As the international investing is outsourced to Vanguard and New Zealand investment is index-based, there are no fund managers and investment analysts to pay. This allows the savings to be passed on to investors, hence the low 0.31% annual fee. 

For all funds, the answer to this is yes. However, the percentage of your money invested in the sharemarket depends on the fund and its risk profile - the Conservative Fund has the least money in sharemarket, whereas the Growth Fund invests the most money in the sharemarket. However, all of the investments are diversified so you are protected if and when one or two investments don’t work out.

Risk - the four funds each offer a unique investment strategy. Some are low-risk, some are medium risk and some are high risk. The returns/profit you make don’t necessarily depend on the risk you take. 

We define 'big' as the total funds under management. Because it's a young scheme, it is smaller than other established providers like ANZ, Westpac etc. But in 2018 the scheme doubled in size, in both members and funds under management. Recent figures are below:

• November 2016: $8.5m, 277 KiwiSaver members
• March 2017: $91m, 3,531 KiwiSaver members
• December 2017: $318m 10,258 KiwiSaver members
• May 2017: $414m, 13,854 KiwiSaver members
• January 2019: $623m, 20,049 KiwiSaver members
• July 2019: $950m, 27,098 KiwiSaver members
• January 2020: $1.5b, 35,546 27,098 KiwiSaver members
  

On the issue of trust, the answer is yes. All KiwiSaver providers must comply with a number of strict rules to ensure the funds of their clients (i.e. what KiwiSaver investors put in) are kept completely separate from the funds used to run the scheme (i.e. money to pay the staff and run the business). Simplicity appoints Public Trust as their independent supervisor and custodian. Public Trust has been around for almost 150 years and is ‘guaranteed independent’ under the Public Trust Act 2001.

​Should Simplicity close down, your funds would transfer to another provider under the rules of the KiwiSaver.
With regards to whether it’s safe to invest, no fund is guaranteed, but the risk profile indicates where your money will be invested. This is the case with any KiwiSaver scheme, and not unique to Simplicity. If a Simplicity fund went ‘bad’, then you could see similar negative results in other funds given Simplicity heavily diversifies its investment in New Zealand and around the world.

The Competition - Simplicity vs SuperLife vs the Rest
Simplicity and SuperLife currently offer the only index fund investment schemes in KiwiSaver. We've included the ANZ Balanced Fund to show fees of an actively managed investment portfolio. 

SuperLife: This is a KiwiSaver provider that offers funds similar to Simplicity, with investments in shares, bonds, and cash under an index fund arrangement. SuperLife doesn’t offer similar fees - latest data of its range of funds puts the annual management fee at 0.80% - 0.84% on a $10,000 investment, far higher than the 0.31% charged by Simplicity. There is also a $2.50 per month membership fee.

ANZ (Balanced Fund): This fund invests in bonds, shares and cash in New Zealand, Australia and around the world, but isn't an index fund and the fund managers will buy and sell investments based on market movements. The fees are 1.01% on a $10,000 investment, plus a $2 per month membership fee.

The numbers
Comparing the above funds with Simplicity's 0.31% + an annual $20 fee, the cost of a $10,000 investment would be $51 with Simplicity, $110 with SuperLife and $125 with ANZ's Balance fund.

What Others Are Saying:

Stuff.co.nz reported in December 2018 that Simplicity's Growth Fund outperformed all over KiwiSaver growth funds in the six months to November 30 2018.

Stuff.co.nz reported in 2016 that Simplicity offered New Zealanders the chance to be “$65,000 better off in retirement”, claiming Kiwis could expect to pay $54,700 on KiwiSaver fees on current structures over their working lives.  

The New Zealand Herald published an article looking at the fees and how a Kiwi with $50,000 invested in the Simplicity growth fund over 10 years could be $13,000 better off than if an investment was made in an average fund. The 0.31% annual fee compared favourably to other provider conservative fund fees which range between 0.97 per cent and 2.38 per cent, balanced fund fees which range between 1.16 per cent and 2.75 per cent and growth fees which range from 1.25 per cent to 2.93 per cent.  

The National Business Review published a piece looking at the ambitions of Simplicity, citing managed investment schemes as a $40 billion market and with an average management fee of about 1.6%, Kiwis are paying $640 million taken out in fees per year. Simplicity “hoped to get 10% of that market in five years.”

The Bottom Line
Simplicity is a good choice if you want to save on fees and want exposure to the share market (both in New Zealand and overseas) without significant risk. In short, it’s a “set and forget” offering an extensive diversification in investments, from cash and government bonds to shares in American and Australian companies. The underlying rationale to the scheme is that market investment always beats a fund manager in the long term, and as KiwiSaver is about the long term, the risks are low and the return is seen to be reliable.

With regards to user experience, logging in is seamless and the dashboard breaks down your total fund invested into components including returns since you joined. There is also a feel-good graph showing projected totals until you reach 65 years of age based on your previous contributions.

But, ​Simplicity is not for everyone. If you are an active or aggressive KiwiSaver investor and want a fund manager to continuously pick shares or other securities for short/medium term investment, Simplicity is not for you.

Limitations
Simplicity doesn’t have a customer-facing office, but it does have a phone number to call - 022 548 0212. Contact can also be made by email, Twitter or Facebook, and the website also offers a “phone me back”. 
 
If you’re looking for funds investing in specific industries, such as oil and gas, agriculture or mining, Simplicity it not for you. Its offering is focused on diversified equity investments in the biggest companies in New Zealand and around the world. As such, you would need to find a specialist fund for such an investment.