It’s been an intense 18 months for global markets, but despite the pressure, KiwiSaver has stood strong.

This is one of the key insights from the latest KiwiSaver annual report, released in September 2021 by the Financial Markets Authority (FMA). Read on to learn more.

Reactivity vs proactivity

In a way, from an investor’s standpoint, the past couple of years have been a tale of ‘reactivity vs proactivity’. Let’s start with the former first: reactivity, and the importance of avoiding impulsive decisions.

According to 2020 data, a large number of KiwiSaver members – especially young investors – switched to lower-risk funds during the height of Covid-19 market volatility (February-April 2020). As a result, many of them have missed out on the subsequent recovery, essentially crystallising their losses.

What’s more, only 9.1 per cent switched back to a growth fund by August 2020, meaning that a large portion of those who left their growth funds are now likely to be in a low-risk fund, which may not align with their savings goals.

This brings us to our next point – the importance of proactivity.

While markets go up and down all the time, it’s crucial to remember that KiwiSaver is a long-term investment vehicle.

So the key thing is to keep your gaze steady on the long term. If you choose a fund based on your risk profile (how much risk you can and are willing to take, based on your personality and investment time horizon), you can comfortably ignore short-term market volatility and focus on the end goal.

The good news, according to the report, is that more and more Kiwis are making an active choice of fund. In March 2021, the number of members sitting in default funds was down 6.6 per cent annually.

Keep in mind that default funds have been designed to be a kind of ‘parking space’ for KiwiSaver members once they’re automatically enrolled by their employer. Up until now, default funds have always been defensive funds, the lowest-risk fund type. So if you’ve never made an active choice of KiwiSaver fund, and you’re still invested in a default option, you might have missed out on significant growth opportunities.

From 1 December 2021, all default funds must be ‘balanced’: while it’s an improvement, a balanced fund may still not be aligned with your risk profile, so we welcome you to contact our SHARE adviser to navigate your options.

KiwiSaver has ‘endured its toughest test to date’

According to the FMA, “KiwiSaver has endured its toughest test to date, and continues to offer millions of New Zealanders an easy way to save for their future goals.”

Collectively, the funds reported a ‘major turnaround’ between March 2020 and March 2021, with the total value of KiwiSaver funds under management recovering and growing 31.7 per cent year-on-year.

Of course, past performance is never indicative of future performance, and markets remain extremely volatile due to inflation pressures, Covid-19, and several other underlying risk factors. As the FMA put it, the growth and returns reported in the period “are not typical and can be attributed to the very specific circumstances of the recovery underway.”

Welcome help for first-home buyers

KiwiSaver continues to help young New Zealanders step on the property ladder. The amount withdrawn for first homes increased by 18.8 per cent in the year to 31 March 2021, to $1.4 billion.

If you’re looking at using your KiwiSaver to boost your first-home deposit, there are key pros and cons to consider. So please don’t hesitate to contact us. Our SHARE advisers can help you understand how a first-home withdrawal may affect your retirement savings goals, and whether you’re eligible to receive a First Home grant of up to $10,000.

Some facts at a glance

Here are some interesting stats and facts from the FMA’s 2021 KiwiSaver Annual Report. All figures are at March 2021 and year-on-year:

• The number of KiwiSaver members increased by 2.1 per cent to 3,090,631.
• The average balance was $26,410 (up 29 per cent).
• Total funds under management amounted to $81.6 billion (up 31.7 per cent).
• Investment returns amounted to $13.2 billion (up 1708.4 per cent).
• Members withdrew* $3.05 billion (up 7 per cent).
• Combined fees revenue (including management fees and administration fees) amounted to $650.3 million (up 20.7 per cent).

* First home, mortgage diversion, end payment, death, serious illness, life-shortening conditions, emigration, Australian transfers, other enactments.

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.