2022 has been another highly volatile year for investors, including KiwiSaver members.

Taking a closer look at the retirement savings scheme, the Financial Markets Authority (FMA) has recently published its KiwiSaver Annual Report 2022. Overall, data shows that the scheme is resilient, but market volatility and inflation are affecting Kiwis’ investing behaviours.

Read on for some key findings.

KiwiSaver funds grew despite lower returns

According to the FMA, KiwiSaver is becoming more and more important for Kiwis’ financial well-being. In the year to 31 March 2022:

• KiwiSaver accounted for 3,168,641 members, up 2.5% from the previous year; and
• The total fund value also increased by 10% to $89.7 billion.

So, KiwiSaver funds grew despite significantly lower returns: investment returns were $1.3 billion, a sharp fall on 2021 gains ($13.2 billion) and more in line with March 2019 ($3.8 billion). This suggests that contributions are driving growth at the moment.

Compared to the previous year:

• Total KiwiSaver contributions were up 7% to $11.3 billion;
• $5.1 billion was from salaries and wages (up 6.2% year-on-year);
• More interestingly, $2.2 billion were from lump-sum contributions – an increase of more than 20% from the previous year.

But as important as contributions have been in strengthening KiwiSaver as a tool, data also shows that many Kiwis might not be contributing enough for their retirement goals.

Regular contribution rates remain low

Unfortunately, according to the FMA report, regular contribution rates remain low and an increasing number of KiwiSaver members have either lowered their contribution rate, or stopped contributing altogether.

Here are some key findings:

• Only 51.7% of KiwiSaver members who are invested in a default (balanced) fund contribute regularly to it;
• Just 62.2% of ‘active’ members (those who have made an active choice of KiwiSaver fund) contribute regularly;
• As many as 1,862,000 didn’t contribute at all in the year to 31 March 2022 (compared to 1,483,000 the year before);
• Plus, the numberof KiwiSaver members contributing at higher rates (for example, 8% or 10%) is also declining.

As FMA’s director of investment management Paul Gregory pointed out, some of it may have to do with rising cost of living. For some members, short-term budgeting needs might take priority over long-term goals.

But it’s also important to note that KiwiSaver is a long-term investment tool. Even small contributions, made regularly, can go a long way thanks to the power of compounding returns. So, if at all possible and affordable, continuing to contribute can make all the difference down the line – even in times of tightening budgets.

Like to discuss your options? Get in touch. We can help you understand where you’re at, and what you can do to give your savings a healthy boost.

Members aged over-65 were the biggest withdrawers

According to FMA’s data, there was a significant increase in KiwiSaver withdrawals by over-65s – up 59.5% year-on-year.

In the year to 21 March 2022, members aged over 65 withdrew nearly $2 billion (compared to $1.2 billion the year before). And, 10% more retirees chose to fully exit KiwiSaver this year, instead of leaving their money invested.

It’s possible that many have done so in response to market volatility, hoping to ‘protect’ their savings. While this is an understandable emotional response, it also comes with potential risks:

• Liquidating investments (including withdrawing KiwiSaver funds) means turning ‘on paper’ losses in ‘real’ losses;
• Your savings become more vulnerable to inflation, which may erode the long-term value of your retirement funds.

To avoid making impulsive investment decisions, it’s important to put things into perspective and consider two key things:

• Retirement itself is a long-haul journey, not a destination, and your savings are the fuel for it. By keeping some of your money invested, you’re giving your nest egg an opportunity to grow further and last longer.
• Market always recover, we just don’t know when. Again, by keeping some of your money invested, at some point you will benefit from the market recovery.

Time to review your KiwiSaver?

Get in touch – from KiwiSaver contributions through your risk profile and retirement projections, our SHARE advisers are here to answer any questions you might have. Click here to find an adviser near you.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.