We know how important it is to provide high quality, low-cost KiwiSaver and managed fund options because of the huge impact this has on your savings. Even though we’re already one of the lowest cost options available in New Zealand, we’re further reducing the fees we charge in the BNZ KiwiSaver Scheme and YouWealth. We want your money to work hard for you, so with these lower fees, more of your money will go to towards growing your investment.
From 28 September, the annual fund charge for all BNZ KiwiSaver Scheme and YouWealth funds will be 0.45% (except for the BNZ KiwiSaver Scheme Cash Fund which will have an annual fee of 0.30%). The new Default Fund that will be available from 1 December will be priced at 0.35% per year.* This fee drop is particularly large for YouWealth, with a more than 40% fee reduction.
But what does it mean in dollar value?
It can be tricky to understand how the fees you’re charged have an impact on your investment value over the full course of your investment, but it does really add up. I’ve used our modelling tools to help demonstrate the difference that lower fees can make to a KiwiSaver account. To help keep the calculation easy to explain, I’ve made some assumptions:
- A 30 year old KiwiSaver member with an annual salary of $60,000
- Employee contributions of 3% each year with compulsory employer contributions of 3% each year
- The member receives maximum Government contributions each year
- Contributions are invested into a growth fund
- A starting balance of $20,000
- Tax calculated at 28% PIR
- No savings suspensions or withdrawals made over 35 years
In a fund charging fees of 1.1% a year, this person would end up with an estimated balance at age 65 of $508,000. Using our fees of 0.45% a year, we estimate their balance would reach $560,000 over the same time frame.
This means the difference in fees alone leads to more than $50,000 extra in their KiwiSaver account at retirement.
So why should you care about fees?
Here are a few things to keep in mind:
- Fees have a big impact on investment returns.
What look like relatively small differences in the fees different providers charge now can make a huge difference later on. That’s because the money you are saving in fees gets invested instead and it can then generate returns over the lifetime of your investment.
- Fees can be confusing.
Many investment providers charge a lot of different fees making it hard to compare options. Our approach to fees is simple. We only charge one low percentage-based fee. We don’t charge member fees (sometimes called administration fees) or performance fees.
- Aligning our fees gives you more flexibility.
We’ve decided to make the fees for the BNZ KiwiSaver Scheme and YouWealth the same across most fund options. This means that in most cases you can put money into a YouWealth fund at the same low fees as the BNZ KiwiSaver Scheme option, without having to lock your money away until retirement. It also means that you can pick the fund that matches your investment goals and risk profile without being deterred by potentially higher fees in some funds.
You should also be aware that tax leakage can have an impact on your returns. Some providers have low fees, but they are also “leaking” money because they haven’t been set up in the most tax efficient way. This is pretty complex but it’s important to note that BNZ holds all its KiwiSaver and YouWealth investment assets in New Zealand so avoids this tax leakage that affects many other low fee providers.
It’s easy to forget about investment fees – after all, they’re built into the unit price of your investment, so get paid without you even seeing the amount. But they’re one of the most important factors in determining the success of your investment approach. That’s why we have such a relentless focus on delivering low cost, high-quality options for our customers.
1. The calculation here is for illustration only to show the impact of lower fees on account balance at retirement and is based on several assumptions and estimates. These financial results are therefore unlikely to reflect an actual balance at retirement. For example, actual investment returns are likely to move up and down due to investment and other risks. Returns may be negative over some time periods.
2. The growth fund used for the purposes of this example is assumed to have an investment return of 5.1% each year. The investment returns used to calculate this reflect our estimates of how investment markets may perform over the long term.The actual investment returns for the BNZ KiwiSaver Scheme funds are not known in advance and will be different to those used in this calculation.
3. In addition to the assumptions outlined above and in the article, the following assumptions apply:
a. We’ve calculated a deduction for Employer’s Superannuation Contribution Tax (ESCT) using the rate applicable to the annual income. We assume the income bands for ESCT will adjust each year in line with salary inflation, so this ESCT Rate is applied to all Employer Contributions.
b. To allow for salary inflation, salary is assumed to increase by 3% each year.
c. Employee and employer contributions continue at the given rate until age 65.
d. Government Contribution rules are assumed to continue in their current form until age 65.
e. All regular cash flows (such as contributions into KiwiSaver) are annualised and occur half way through the year.
f. Assumed rate of inflation is 2% per annum.
g. Buy Sell spreads are not applied to the calculation.
BNZ KiwiSaver Scheme Default Fund
*No money is currently being sought for the BNZ KiwiSaver Scheme Default Fund, and it will not be available for investment before 1 December 2021. Any offer for the Default Fund will be made in accordance with the requirements of the Financial Markets Conduct Act 2013.
The information and recommendations in this article are the personal views of the author and do not necessarily represent the views of BNZ, or its related entities.
This article is solely for information purposes and is not intended to be financial advice. If you need help, please contact BNZ or your financial adviser. Neither BNZ nor any person involved in this article accepts any liability for any direct or indirect loss or damage arising out of the use of, or reliance on, all or any part of the content.
BNZ Investment Services Limited, a wholly owned subsidiary of BNZ, is the Issuer and Manager of both the BNZ KiwiSaver Scheme and YouWealth. A copy of the relevant Product Disclosure Statement is available on bnz.co.nz or pick up a copy from any BNZ branch.
Investments in either the BNZ KiwiSaver Scheme or YouWealth are not bank deposits or other liabilities of Bank of New Zealand (BNZ) or any other member of the National Australia Bank Limited group. They are subject to investment risk, possible delays in repayment, possible loss of income and possible loss of principal invested. No person (including the New Zealand Government) guarantees (either fully or in part) the performance or returns of the BNZ KiwiSaver Scheme or YouWealth, including the repayment of capital.