Competition among KiwiSaver providers is weak, says a Treasury paper.

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Treasury says the level of fees and returns is crucial in terms of how much money is in the pot at retirement, so in theory, at least, KiwiSaver providers should be competing hard in those areas to attract customers.

That's not happening: fees haven't fallen, and people pay little attention to returns.

Instead, they've increasingly favoured the major banks that dominate KiwiSaver, where they get a good deal by bundling up their mortgage and credit card with their retirement scheme.

Treasury suggests competition would be sharpened by a significant lift in people's understanding of how fees and returns affect their balances.

It also says members sensitivity to fee levels may change as fund balances grow in the future.

KiwiSaver: The facts