25 May 2021

KiwiSaver funds: Pandemic switch may have left thousands out of rebound

5:19 pm on 25 May 2021

Thousands of young New Zealanders are potentially missing out on investment returns after switching their KiwiSaver funds early last year.

white piggy bank and New Zealand banknotes of different denominations

Photo: 123RF

Data supplied to the Financial Markets Authority (FMA) from 11 KiwiSaver providers showed 12,700 people aged between 26 and 35 moved from growth to conservative funds when the pandemic prompted a sharp downturn in global investment markets.

However, the authority found many of these people had not switched back, meaning they would have likely missed the rebound in equity markets later in 2020.

FMA manager of investor capability Gillian Boyes said young New Zealanders needed to review their KiwiSaver statements to ensure they were in a fund that met their long-term investment goals.

"Generally speaking, you should be in a high-growth fund the younger you are and the further you are from retirement."

Growth funds provided the greatest opportunity to maximise returns and although the balance might jump around, young people had plenty of time until retirement age to recover any losses, she said.

Younger people were the most likely of any age group to switch funds, something Boyes put down to their lack of investment experience.

"For this group, it's the first time they have seen a major market downturn. We know that young people are not very engaged with KiwiSaver and they don't understand it," she said.

"We know that they are high users of digital technology so it's very easy to switch."

She said she suspected some people had not switched out of conservative funds because they had low tolerance for risk, but for many others they had simply forgotten about making the change in the first place.

The FMA launched a new campaign encouraging young people to engage more with their KiwiSavers, but Boyes said there was a need for providers and employers to take more responsibility for educating people about the scheme.

Get the RNZ app

for ad-free news and current affairs