Contributions from investors are on the rise, but there are worries the cost of living is changing how much people are willing to contribute to their KiwiSavers.
Video / NZ Herald
Another fall in sharemarkets in recent weeks has sent KiwiSaver balances tumbling again, but experts say now is not the time for kneejerk reactions.
Sharemarkets around the world had appeared to be rallying after hitting a low point for 2022 in June. But since mid-August they have fallen again, withthe US S&P500 share index hitting a fresh low for the year on September 30.
The US market is down by more than 20 per cent so far this year, while New Zealand's benchmark index, the S&P/NZX50, is down 15 per cent this year.
Eachann Bruce, a KiwiSaver adviser at Milford Asset Management, said it had been an incredibly volatile period.
"The last three weeks has seen the American market lead everything lower. Then the last 48 hours there has been a pretty aggressive bounce."
He said the issues dominating markets were predominantly concerns about high inflation and rising interest rates.
"It is really the rhetoric coming out of the central banks about what inflation looks like and what interest rates look like going forward.
"Right across the board, it has been a pretty tough calendar year to date with pretty much all KiwiSaver funds having fallen, maybe barring a few of the cash and super-low-risk funds. If the equity markets continue to fall, that is going to drag KiwiSaver balances down."
Bruce said he had been fielding calls from clients concerned as they watched the markets drop.
"The key point that I am talking to clients about is that it is not the time to panic and make irrational decisions during volatility.
"You need to be very considered about your approach and make sure you have got your goals well set, then you know what you are trying to achieve. You know exactly how long you have got and what risk you are exposing yourself to."
Bruce said economic cycles occurred every seven to 10 years.
"If I am talking to someone in their mid-30s who has got 30 years left until retirement, these volatility moments happen in six- or eight- or 12-month periods. They could happen another three or four times before you retire.
"So get used to volatility and make sure you have got a plan and you have got a direction you can trust and then stick with it as best you can."
In March 2020 the sharp fall in markets prompted a number of KiwiSaver investors to switch from growth funds to conservative funds, resulting in them turning their paper losses into real ones, then missing out when the markets bounced back within six weeks.
Tammy Peyper, head of investor capability at the Financial Markets Authority. Photo / Supplied
Tammy Peyper, manager of investor capability at the Financial Markets Authority, said it was not seeing anything on that scale this time around, but she was worried that the longer the volatility continued, the more people could consider a fund switch.
"Nobody knows how long the downturn or volatility is going to continue. What we don't want people to do is make the assumption that these things are quick because we actually don't know.
"And we don't want people to get jittery because they are not seeing this quick recovery."
Peyper said people should stick with the fund that was right for when they planned to use the money.
Close to or in retirement
Figures from the FMA's annual report released this week show there was a big jump in the amount of money that over-65-year-olds took out of KiwiSaver in the year to March 31.
Investors in that age bracket took out $1.95b, up from $1.22b the previous year.
More retirees also fully got out of KiwiSaver - up 10 per cent to 21,466.
Peyper urged KiwiSaver members who are close to retirement not to make knee-jerk decisions.
"The closer you are to retirement, obviously you are going to feel that because you are going to need that money sooner."
She said those concerned about their balance falling should contact their provider to talk about their options.
"That's also where the importance of that retirement plan starts kicking in. When do you actually need the money, how are you going to invest it? Before people do withdraw KiwiSaver, I really do encourage them to reach out to their KiwiSaver provider or their financial adviser if they have one, to determine what is the best for them at that point in time."
First home-buyers
Peyper said being able to get money out of KiwiSaver to buy a first home made it different to many other retirement schemes around the world, which could only be accessed for retirement.
"The same principles apply: the closer you get to using that money, you need to be thinking about what fund are you in."
She said the rule of thumb was that the sooner you were going to need the money, the more conservative the investment approach needed to be.
Bruce said first home buyers worried about their deposit shrinking should look to use a cash fund.
"The purpose of a cash fund is to remove exposure from the market and to provide them somewhere to protect their funds. Generally, someone looking to go into those funds would be purchasing a property within 12 months."
Cash funds invest in term deposits and other short-dated securities, while conservative funds invest largely in bonds with around 20 per cent in shares.
Bond values have fallen sharply this year thanks to rising interest rates, meaning that on average, conservative funds have slid backwards more than balanced and growth funds - a highly unusual situation.
Feeling stressed out?
Peyper said although the fall in a KiwiSaver balance was only a paper loss, it still made people feel worried and stressed out.
"Because you are living in it, you can feel quite stressed about it. That is completely normal."
She said it triggered the same fight-or-flight feeling that primitive humans faced when being chased by a tiger.
"It is the same part of the brain - it is very primal so you see your balance go down and you really need that money to survive. So what it can do is trigger this desperate need to take action."
But she urged people to pause before doing anything.
"The advantage with KiwiSaver is you do have the luxury of being able to pause. That tiger is not going to eat you."
She said people should talk to their KiwiSaver provider, discuss things with their financial adviser or look to what the financial experts were doing to get a steer.
