Employees who were enrolled automatically in "default" KiwiSaver schemes lost almost half of the money earned on their savings in the past year - through providers' fees.
The Financial Markets Authority's annual report on KiwiSaver, issued this month, shows the six default providers charged a total of $43 million in fees on fund earnings of only $104 million; a fee ratio of 42%.
Non-default providers charged $121 million in fees, or 28%, on fund earnings of $432 million.
A non-default fund provider who analysed the report, Michael Chamberlain, said the default providers' high fees highlighted risks in a Government plan announced on Tuesday to enrol all remaining employees in default funds in 2014-15, although they have a right to opt out again if they choose.
"If the Government is going to auto-enrol all other employees, surely it would want to auto-enrol them into schemes where the fees are reasonable," he said.
A spokesman for Finance Minister Bill English said the fees would be reviewed before then.
"This is an important issue and it was raised by the Savings Working Group," he said.
"This will be one of the issues considered by a review of default provider arrangements, which will be conducted over 2012 and 2013, before default provider contracts are reviewed in 2014."
The report shows 403,000 people, just under a quarter of the 1.7 million people in KiwiSaver, were still in the default funds on March 31.
The six funds earned an average of 5.5% on their investments in the year to March.
As expected, this was lower than the average 8.1% return on non-default funds, because the default funds have to invest in "conservative" investments, such as cash and government stocks.
But Mr Chamberlain said their fees should also be lower because their members were enrolled automatically by the Inland Revenue Department when employees started a new job.
"They are ashamed but they won't admit that they are gouging," Mr Chamberlain said.
"The Government should be ashamed. It's a waste of taxpayers' money."
Chris Douglas, of the fund-rating agency Morningstar, said the fees were "a lot more excessive than the fund managers are trying to portray, especially with the default schemes".
This was partly because of the high cost of processing people who were enrolled automatically and then opted out or switched.
"The default providers are running their schemes at a loss at the moment," he said.
The default providers are ASB, AMP and its subsidiary AXA, ANZ Bank subsidiary OnePath, Mercer and Tower.
- Simon Collins
