“It’s important for people to have access to hardship withdrawals when life goes badly off plan, but it’s a last resort. And once the acute issue has passed, people need to continue saving for retirement,” he said.
Furthermore, 121,019 people had suspended their KiwiSaver contributions as at March 31 – 20 per cent more than a year earlier.
“That’s understandable if people are really struggling, but restarting contributions as soon as possible will set them up for a better retirement,” Johnson said.
The FMA’s KiwiSaver report reflected other economic themes prevalent in 2022-23 – such as high interest rates dampening the property market and encouraging people to put their money in term deposits.
KiwiSaver withdrawals for first-home purchases fell by 36 per cent to $926m – levels last seen four or five years ago.
A total of 30,625 people withdraw an average of $30,223 for deposits on their first homes.
Meanwhile, over-65s withdrew $2.8b – 46 per cent more than the previous year – possibly due to term deposits becoming a relatively more attractive way for them to save or earn passive income.
Over-65s aren’t required to withdraw their full balances. Indeed, some providers enable them to make regular drawdowns. More than 170,000 over-65s are KiwiSaver members.
Looking at the KiwiSaver scheme as a whole, funds under management rose by 4 per cent in the year to March, to $93.7b, while member numbers rose by nearly 3 per cent to 3.25m people.
Net investment returns fell by $1.9b, although Johnson said many investors had since recovered their losses.
The amount KiwiSaver members paid in fees fell for the first time since the scheme’s inception to $664m.
Fees were equivalent to 0.71 per cent of funds under management in 2022-23, compared with 0.81 per cent in 2021-22.
This reduction was due to poor investment returns preventing some providers from charging performance fees, some providers reducing administration fees and some removing membership fees.
John Horner, the FMA’s director of markets, investors and reporting, also believed the Government’s decision to put the spotlight on fees when it selected new default providers in 2021 put downward pressure on non-default fund fees.
Furthermore, he said the FMA had been encouraging KiwiSaver providers to pass on the benefits of scale to members by lowering fees.
He believed that, as people were becoming more familiar with the scheme, they were comfortable switching from lower to higher-risk funds.
The portion of members opting for growth funds rose from 23 per cent 10 years ago to 33 per cent in 2019-20 and 37 per cent in 2022-23.
“The FMA has said for some time that younger investors should consider funds with more growth assets, as these are more suited to a longer investment horizon,” Horner said.
There had also been a strong uptick in balanced funds, as the Government decided in 2021 to switch default funds from conservative to balanced.
Jenée Tibshraeny is the Herald’s Wellington Business Editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
