September 20, 2023
KiwiSaver: The Good, The Bad and The Lessons
With its array of achievements and hurdles KiwiSaver has transformed into a crucial resource for countless Kiwis. It offers both a safety net and a launchpad for our financial aspirations. The recently released annual report from the Financial Markets Authority – Te Mana Tātai Hokohoko (FMA) offers valuable insights and lessons from yet another milestone year in the world of KiwiSaver.
Membership growing faster than the population
Now in its 16th year, KiwiSaver membership has continued to climb, surpassing previous annual records with a 2.7% increase. Significantly, the growth in membership has outpaced our projected population increase of 1.6% over the same period.
Balances are up
Despite market turbulence and declines in some investment sectors, KiwiSaver balances have shown resilience and registered an overall increase. The magic lies in consistent contributions, bolstered by employer matching and government contributions (50 cents added for every dollar you contribute, up to a maximum of $521.43). Collectively these propelled the average balance to grow by 1.6%.
This serves as an important reminder that disciplined saving and investment habits, as exemplified by KiwiSaver, is a potent strategy for long-term wealth building. It's noteworthy that this marks only the fourth instance of collective investment performance loss since the inception of KiwiSaver.
We paid less
This year’s annual report delivered a significant revelation: for the first time since the inception of KiwiSaver, the collective fees we paid were less than the year before. A remarkable development that occurred even as our total investments grew, and against a backdrop that can be summarised as rising costs.
How? KiwiSaver members increasingly understanding the role fees play on their long-term returns. They are proactively shifting to lower fee providers and new KiwiSaver entrants. The growth has collectively helped to lower overall fees to $664 million.
All thanks to KiwiSaver reaching scale, a regulatory focus on assessing the value for money investors get from their KiwiSaver provider, less managers collecting performance fees and more KiwiSaver providers dropping fixed membership fees.
Women are leading the charge
KiwiSaver and investment statistics often cast women in a negative light. Shown by the troubling fact that women retire with 20% less savings than men due to enduring issues of pay inequality and the impacts of parental leave.
Despite this, there's a notable positive trend emerging from this year's report. Specifically, there are more openly registered female members in KiwiSaver than their male counterparts.
In a year when the FMA's annual KiwiSaver campaign encourages primarily women, to "Own Your Tomorrow" by actively reviewing their KiwiSaver, it's heartening to see that more women than men are opting to proactively select their KiwiSaver provider rather than a default fund (where allocation is assigned by Inland Revenue rather than chosen).
Financial hardship withdrawals were up 36.7%, back to peak Covid levels. A reflection of the challenging times faced by many with rising cost of living pressure.
Retirees have also been dipping into KiwiSaver, with those over 65 withdrawing more than $2.8b (up 46%). After years of contributing, having KiwiSaver assets to help support retirement is an invaluable tool. So much so that many over 65 and still choosing to retain and contribute to their KiwiSaver – keeping up those investment habits, seeing KiwiSaver as an income supplementer rather than a lump sum.
We put less in
Overall, KiwiSaver members contributed $6.5b, but this was down 15% on the prior year, predominantly driven by lower voluntary contributions. Historically, many Kiwis, particularly self-employed Kiwis, put in a lump sum to get the government contribution.
The decline in lump-sum contributions may be a reflection that the last year has been tough for many Kiwis. Putting aside an extra $1,043 into KiwiSaver to get the $521 in government contribution may not have been possible for many households or self-employed Kiwis. These economic pressures may have led to the number of Kiwis taking a formal savings suspension rising by 19.8%.
Some of us are too active
Being engaged with your KiwiSaver is positive. But when it comes to switching between funds, our level of activity can vary greatly. It's common and reasonable to make changes between fund styles, but these shifts should ideally be prompted by relevant changes in personal circumstances (e.g. getting closer to retirement and withdrawal) rather than market conditions or investment performance.
For instance, transitioning from a growth to a balanced fund as retirement approaches is a sensible strategy. However, it's worth flagging that 40,350 Kiwis made two or more switches between fund styles in the past year. Frequent changes motivated by the desire to chase returns, react to market concerns, or respond to media headlines can potentially do more harm than good. KiwiSaver offers only a limited number of key withdrawal opportunities, so frequent shifts can become a counterproductive habit.
We aren’t moving homes
Much like the housing market, it seems Kiwis were less inclined to move their KiwiSaver during 2022/23; often driven by a unsubstantiated fear of changing providers when their performance is negative for a particular period. During the year, KiwiSaver transfers between providers were down 16.8%, the lowest number of transfers since 2013.
Many still aren’t involved
1.25 million KiwiSaver members aren't actively contributing. There are a vast range of reasons why Kiwis aren’t engaged with KiwiSaver, but it can be an incredibly important tool in helping build financial security into the future. Last year, members aged over 65 withdrew over $2.8 billion for retirement. Despite a drop in first home withdrawals, nearly $1 billion was withdrawn by 30,625 Kiwis, averaging $30,223 each for their first home deposits.
The annual KiwiSaver report provides valuable insights and serves as a timely reminder of the importance of periodically evaluating and ensuring that your KiwiSaver is tailored to your specific needs.
Since its launch in 2007, the number of KiwiSaver providers has grown to 38, providing an array of options that can better align with your values and needs.
The FMA encourages Kiwis to ponder essential questions such as "Is my current KiwiSaver fund the right fit for me?" and "Am I receiving good value from my KiwiSaver provider, considering their fees?".
This weekend, take a moment to answer these questions, try tools such as Sorted’s KiwiSaver Fund Finder, and use these insights to understand how you can maximise your KiwiSaver.