Covid taught us to love KiwiSaver, but also revealed some of its flaws

ANALYSIS: At first, Covid-19 and KiwiSaver seemed to be a toxic mix, causing the sales to dip downward.

But weeks after the pandemic went global last year, panic in global stock markets was replaced by a stock price boon inspired by the stimulus.

This brought KiwiSaver sales, and with it, invested knowledge and confidence in KiwiSaver.

But outside of the markets, the Covid lockdown in 2020 has brought to light some flaws in KiwiSaver, and some of them don’t appear to be fixed anytime soon.

Unlike dollar coins, KiwiSaver is an intangible investment, with money invested by fund managers in stocks, bonds, and other financial investments.  More of us understand this, fewer people claiming not to know where their money is going.

123rf

Unlike dollar coins, KiwiSaver is an intangible investment, with money invested by fund managers in stocks, bonds, and other financial investments. More of us understand this, fewer people claiming not to know where their money is going.

1. Covid taught us a KiwiSaver lesson

When the Pensions Commission asked people last October about their experiences with Covid, it found a remarkable side effect of the pandemic. This has helped a lot of KiwiSavers understand the program.

“The percentage of Kiwisaver members surveyed who did not know what type of fund they belonged to (aggressive, growth, balanced, conservative, cash, life stages) has decreased,” the commission reported.

“This may be due to the extensive discussion of KiwiSaver in the media after KiwiSaver balances started to go down,” he said.

But, “a substantial percentage of KiwiSaver members are disengaged from their KiwiSaver,” the report says.

“Some of these members may have been asked to verify the type and balance of their KiwiSaver fund for the first time in response to news of market volatility.”

KiwiSaver may not be the goose that lays the golden eggs, but it has impressed people with its resilience during the disruptive Covid pandemic.

123RF

KiwiSaver may not be the goose that lays the golden eggs, but it has impressed people with its resilience during the disruptive Covid pandemic.

2. More of us have come to love KiwiSaver

KiwiSaver has impressed savers with its resilience to Covid.

Central banks around the world have cut interest rates and governments have borrowed to support economies.

This led to a stock price boom after an initial panic that sent stock prices plunging in February and March of last year.

Investor sentiment tests conducted by the Autorité des marchés financiers (FMA), released in early August, found that confidence among people with KiwiSaver accounts had reached an all-time high.

Many had even increased the amount they were saving.

“Investors who have KiwiSaver, as well as other investments, have been the most active over the past 12 months in terms of changing their investments, especially increasing their investments,” said the FMA.

For two people who reduced their KiwiSaver contributions, 15 increased them.

Investing in stocks is often thought of as a roller coaster.  But roller coasters start high in the air and end up lower than they started.  People who invest in stocks may experience losses, but in the long run their money should rise in value.

Getty Images

Investing in stocks is often thought of as a roller coaster. But roller coasters start high in the air and end up lower than they started. People who invest in stocks may experience losses, but in the long run their money should rise in value.

3. We have learned to live with more risk

Since its launch, KiwiSaver’s asset allocation has been more like that of a person just a few years away from retirement, rather than a long-term savings plan for young and middle-aged workers.

As of December, 52% of KiwiSaver’s money was in what are collectively known as “growth assets,” according to fund research firm Morningstar.

These are things like stocks of companies, stocks of private companies not listed on the stock markets, and real estate investments.

Over the long term, growth assets are expected to generate a higher return than so-called “income assets,” which are fixed-rate bonds and cash, in which the remaining 48% of the money is. KiwiSaver were invested last December.

The latest figures from Morningstar show that by the end of June, the proportion of KiwiSaver money in growth assets had jumped to just over 57%.

Morning Star Asia Pacific Director of Manager Research Tim Murphy said separating growth and income assets is one of the most important decisions to make when saving for retirement.

“The returns on growth assets such as real estate and stocks will be erratic, as the recent market volatility has demonstrated, but over time they have shown a greater ability to increase in value,” he said.

When the stock markets lost value when the Covid pandemic hit in February and March last year, people even took photos of the stock price charts to commemorate the event.

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When the stock markets lost value when the Covid pandemic hit in February and March last year, people even took photos of the stock price charts to commemorate the event.

4. We have learned that we need to teach young people better

Many young KiwiSavers are poorly educated when it comes to investing, according to data from the Financial Markets Authority.

When Covid-19 caused panic in the stock markets last year, thousands of young KiwiSaver members shifted their money from growth funds to conservative funds. Most had not yet returned by May of the following year.

By this time, stock market panic and falling stock prices had been replaced by investor optimism, as stock prices rose, prompted by a flood of financial support from governments around the world and the falling interest rates.

The FMA said thousands of savers between the ages of 26 and 35 switched to low-risk funds between February and April of last year, when stock markets fell as investors began to grasp the true scale. of the Covid pandemic.

Gillian Boyes, head of investor capacity at the FMA, said young people tend to act when they see their balances going down.

“Younger people with a KiwiSaver banking provider often see their balance next to their day-to-day accounts,” Boyes explains.

“Research has shown that this can influence young people to view their KiwiSaver as both accessible and transactional like a bank account.”

Autorité des marchés financiers investor capacity manager Gillian Boyes says some people may mistake their KiwiSaver account for a regular bank account.

Provided

Autorité des marchés financiers investor capacity manager Gillian Boyes says some people may mistake their KiwiSaver account for a regular bank account.

She says people often had an “action bias,” which prompted them to act in order to gain a sense of control in times of uncertainty.

“Action bias means that people felt the need to ‘do something’ to have a sense of control over their falling balance, other factors causing this activity were emotionally charged public chats on KiwiSaver at at the time, a herd mentality and a desire to mitigate short-term losses.

Unfortunately, a panic decision to change due to shorter-term events can have long-term consequences for how much people have saved when they retire, she says.

The FMA recommended that KiwiSaver providers change their communications with a greater emphasis on using the science of “behavioral economics” to better understand how their savers think.

Whether this has any effect, only time will tell, she said.

Picton man James Gardiner has called on Parliament to change KiwiSaver laws to make them fairer for those facing hardship.

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Picton man James Gardiner has called on Parliament to change KiwiSaver laws to make them fairer for those facing hardship.

5. KiwiSaver hardship withdrawals were on paper

People with money in KiwiSaver were supposed to be able to withdraw it, if they got into financial difficulty.

But it turned out that the application process required people to make a statutory declaration, which they could only do when meeting face to face with a justice of the peace or a lawyer.

It wasn’t great when the country was in lockdown, and about a third of households were experiencing a drop in income.

Other problems emerged, including KiwiSaver Grant Davies who called on Parliament to change the KiwiSaver rules to allow people who have lost their jobs to use their KiwiSaver money to reduce their debts.

He argued that under current hardship rules, KiwiSaver money could be withdrawn to make payments to lenders, but not to write off debts.

Picton man James Gardiner has called on the government to let him ease his financial situation by withdrawing $ 50,000 from KiwiSaver to pay off his debts.

Covid has caused a big digital leap, including with KiwiSavers being able to make statutory statements on Zoom, MPs have not heeded calls to change the strict rules.

Ultimately, the national wage subsidy program prevented the lockdown from becoming an unemployment crisis.

Jade Rihari and Zain Elliott have called on Parliament for a fair chance to buy a first home.

PROVIDED

Jade Rihari and Zain Elliott have called on Parliament for a fair chance to buy a first home.

6. Returning Kiwis Reveal Trans-Tasman Flaws

Covid-19 has resulted in many New Zealanders living abroad returning to their home countries, but many have found themselves excluded from the housing market because they cannot access their super savings for a deposit on a first home.

Jade Rihari has asked lawmakers for a fairer deal with KiwiSaver for the return of the Kiwis to allow them to withdraw funds transferred from their Australian super-programs to KiwiSaver to use as a deposit on a first home.

This would put them on a par with KiwiSaver who can use the money they saved in KiwiSaver to buy a first home, she argued.

Unfortunately, the government categorized the petition as “too hard”, turning down many other KiwiSaver petitions.

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