The Financial Services Council says the tax burden and very conservative default funds eat into KiwiSaver nest eggs to a far greater extent than the fees fund managers charge.
Council chief executive Peter Neilson says tax on KiwiSaver contributions, as well as on the investment earnings those contributions achieve, can reduce the resulting nest eggs by 50% or more.
Mr Neilson says if a saver who is currently invested in a very conservative default fund were to move to a more balanced fund, they could boost their retirement nest egg by about $150,000.
If that saver moved to a growth fund, which typically invests only in riskier but high-returning shares, they could boost their nest egg by about $250,000.
"Typically fees being currently paid are somewhere between 1% and 1.5% - much lower than the impact in each particular year of those two impacts of the tax and where you invest your money."
New Zealand First plan
New Zealand First leader Winston Peters announced a Government-guaranteed KiwiFund scheme which would invest substantially in New Zealand at the party's national conference.
He says his proposed alternative to KiwiSaver would provide much better returns for savers.
Mr Peters said the fund would be offered alongside the private providers, but would have a much higher return, a government guarantee of capital, and would slash costs and fees.
Mr Peters told Radio New Zealand's Morning Report programme the present KiwiSaver scheme allows fund managers to take far too much money from people, which means reduced returns.