'5 mins with the FMA' podcast #8: KiwiSaver Annual Report - 2023

Kia ora everyone, the FMA has just published its latest KiwiSaver Annual Report. John Horner, Director of Markets, Investors and Reporting at the FMA joins us to tell us more.  

Hi John, it was an interesting year for KiwiSaver - there were negative investment returns but the total amount of KiwiSaver funds is up 4 per cent to just under 94 billion. How did that happen?  

Kia ora, the growth in funds is largely due to contributions from members, employers and the Crown.  

We’ve seen that over time the impact of contributions outweigh the impact of returns. Over the last few years since 2020, while we’ve had 2 years of investment losses, total investor funds in KiwiSaver have grown from $61bn to $93bn. 

This just shows how important it is to make regular contributions to KiwiSaver.  

Are we seeing any changes in the type of funds people are choosing?  

Yeah, we are. Growth is now the most popular fund choice, and there’s a couple of reasons for that. 

We consider it likely that more people are becoming comfortable with the long-term nature of KiwiSaver and making active choices to reflect that.  

It may also be driven by recent changes in default fund settings from Conservative to Balanced.  

We’ve said for some time that we hope people with a long-term investment horizon choose funds with more growth assets, so we see this as a real positive.  

The FMA’s had a big focus on KiwiSaver fees over the past few years. What changes do we see in this latest report?  

One measure of value for money for members is total fees, which are down eight per cent – that’s the first year in KiwiSaver history that total fees haven’t risen!  

There are a few reasons we think. The overall default fund fees are lower following the changes in 2021. Some providers have removed fixed membership or administrative fees, and others will not have earned the same level of performance fee as in previous years. We think this is good news for KiwiSaver members in terms of fees. 

We’ve been encouraging providers to share benefits of scale with members, and reducing fees is one way to do this.

The new default arrangements come up a couple of times showing up in the report. Tell me a bit more about those?  

The year covered in this report was the first full year that default members were covered by the new arrangements implemented in 2021.  

These new settings mean default members pay lower fees and their money is invested in a balanced rather than a conservative fund – they get some enhanced service levels and member engagement.  

The default funds also exclude investments in fossil fuels. 

Contributions were important to the money coming in. What about funds going out?  

Yeah, this is an interesting one. Over sixty-fives took out more than $2.8 billion – up more than forty six per cent.  

We don’t know for sure, but the increase in withdrawals might be a response to recent market volatility, and an increase in returns from term deposits.  

We continue to reiterate that KiwiSaver’s a long-term investment, and leaving money in KiwiSaver even after retirement can be beneficial.  

It also highlights the importance of quality financial advice around retirement. 

While withdrawals are up this year, a large majority of people over 65 are keeping money in KiwiSaver. 

The markets have been really volatile for the past three years now. Has this changed investor behaviour?  

There’s been a lot of work in the sector reminding investors about the risk of crystallising losses, if you sell when markets are down. I think investors are becoming more aware of the need to focus on the long-term and ride out these choppy waters.  

KiwiSaver’s been going for sixteen years now, and this is just the fourth year we’ve seen negative investor returns. And sometimes it isn’t easy to watch, but it’s a normal part of investing.  

We’ve heard from the providers and supervisors that there’s been a bit of switching between different funds and a reduction in contributions, but there doesn’t seem to have been the same panic switching that we saw around the start of the Covid pandemic. And that’s a positive sign. 

So John, just to wrap up, what are your general observations around KiwiSaver and where it’s at?  

With close to $100 billion now invested in KiwiSaver and the rate of growth accelerating over time, it is critical to the financial security of New Zealanders in retirement.  

Of course there is always more we can do, but we can view 2023 as a year when KiwiSaver ‘held firm’ in a challenging investment environment, when contributions proved more important than investment returns.  

The shift away from conservative and towards growth funds over the last ten years indicates that people better understand the long-term nature of retirement saving – so we can be pleased with that.  

Thanks John. That’s John Horner and that’s another Five minutes with the FMA. For more about KiwiSaver and to check out the complete report, go to our website at fma.govt.nz. 

We’ll bring you more FMA Insights next month. Until then hei kōnā mai – bye for now.