Competition over KiwiSaver fees has stepped up a notch with BNZ dropping its monthly charges and set to cut the management fees on four of its funds.
The bank, which has more than $2 billion invested in its KiwiSaver scheme and is the seventh largest provider, removed its $1.95 monthly member fee on May 1 and will reduce charges on its conservative, moderate, balanced and growth funds on May 13.
Its conservative fund management fee will drop from 0.58 per cent to 0.5 per cent while the other three will be aligned and cut to 0.58 per cent.
The biggest drop is in the growth fund which will fall from 1.1 per cent of funds under management, meaning someone with $20,000 invested would pay $116 a year, down from $243.
The change potentially puts BNZ ahead of non-profit provider Simplicity which burst on to the market in 2016 with a low-cost model. Simplicity has an annual membership fee of $30 and a fund management charge of 0.3 per cent.
Figures from the Government's Smart Investor online comparison tool put the total fee for Simplicity's conservative fund at 0.61 per cent.
New entrant Juno is the cheapest, according to the tool which bases its figures on a person having a $10,000 balance, with a total fee of 0.33 per cent for its conservative fund, 0.36 per cent for its balanced fund and 0.32 per cent for its growth fund.
Paul Carter, the chief customer officer consumer and wealth at the BNZ, said its decision to drop the fees was based on its customer research which showed the biggest driver of financial anxiety was people not having enough for retirement.
"New Zealanders typically know they should be doing something about this but don't know what to do."
Carter said the monthly fee cut was part of a simplification of fees and products which the bank was undertaking.
It will now be the only bank not to charge a monthly or annual member charge, although other providers have also dropped it.
He said the decision to bring all the fund fees into alignment was because its research showed too many people were choosing the conservative fund because the fee was cheaper than the other funds.
The change in management fee coincides with BNZ switching its overseas equity and bond investment from an active manager to passive fund manager Vanguard.
Passive funds typically use computer algorithms to track indices and are much cheaper than active fund managers which pay people to research and select companies.
It would keep its Australasian equity and bond investment under an active manager as it believed it could still add value doing that in a smaller market such as New Zealand and Australia, Carter said.
Although the move to a passive manager would cut costs for the funds, Carter said it would still be losing revenue in the near term but hoped the lower fees would allow it to attract more members in the longer term.
"We want to be a significant part of the KiwiSaver landscape."
Carter said it would be interesting to see if others would match the BNZ's move but he would not speculate on it further.
"We know we are going out there to shake things up."
Simplicity chief executive Sam Stubbs welcomed the competition but said its fees were still cheapest for KiwiSaver members with a balance of $17k or higher in a conservative fund and lower balances for a balanced or growth fund.
The median KiwiSaver balance was $13k as of June 2018, according to Statistics New Zealand.
BNZ's move comes as the Government begins its seven-year review of the default providers and Minister of Commerce Kris Faafoi has already said fees will be a focus.
The review is the second since KiwiSaver began in 2007 and final changes won't be made until 2021.
BNZ is not the only default provider to cut fees this year.
In March Kiwi Wealth cut its annual member fee from $50 to $40 and reduced the fund management fee on its conservative fund from 1 per cent to 0.83 per cent while also slicing 2 basis points off its growth fund and 6 basis points off its balanced fund.
At the time Kiwi Wealth said it was reducing the fee on its conservative fund because it was "the right thing to do".
Kiwi Wealth said it hadn't changed its fees since 2012 when Kiwibank's parent company acquired it from Gareth Morgan Investments.
Lowest fee for a conservative fund
Juno conservative fund 0.33%
BNZ conservative fund 0.50%
Simplicity conservative fund 0.61%
AMP default fund 0.65%
ASB conservative fund 0.69%
sector average 1.12%
- Source: Smart Investor