17 Jun 2021

KiwiSaver: Younger people panic-switched funds during Covid-19 market fall

8:44 am on 17 June 2021

KiwiSaver fund managers are being urged to do more to prevent investors from panic-switching between funds.

Euro Pay slip and calculator, close up for payroll or salary background

More than $1b of KiwiSaver funds missed out on a market rebound after the early days of the Covid-19 pandemic. Photo: 123RF

A report for the Financial Markets Authority (FMA) showed a relatively large number of young people switched into conservative funds during the early days of the Covid-19 pandemic, and subsequently missed out on the rebound in financial markets, locking in their losses.

The value of switches made to lower-risk funds during Covid was $1.2 billion, but only $121 million was moved back into higher risk funds, the PwC report said. This meant more than $1b of KiwiSaver funds that had been moved missed out on the subsequent market rebound.

"A lot of people get misled by the name KiwiSaver and think it's a savings account," said one respondent identified in the report as Will, 27, who worked in a fund provider's call centre.

"That department had a lot of people calling up asking why someone was withdrawing from their savings account and didn't realise it was an investment fund," he said.

"That's something we heard a lot about and I've had to explain that to a lot of people as well."

The FMA said the report highlighted the importance of education and communication to help investors make better decisions.

One of the recommendations was to make it harder for people to switch between funds.