What to do if your KiwiSaver account has gone backwards

KiwiSaver members have some tough decisions ahead. Photo / NZME

For the first time in 13 years KiwiSaver members could be staring at balances that have gone backwards in their annual statements.

Either posted out by snail mail or sent electronically the statements are due to arrive around now and let savers know how much their account balance is now sitting at as of the end of March.

Apart from a six-week dip in financial markets in 2020 as the global pandemic erupted KiwiSaver members have enjoyed a strong bull market run since 2009 when the Global Financial Crisis hit.

But since peaking in November markets around the globe have fallen, with some dropping more than 20 per cent already, and that will have flowed on to KiwiSaver balances.

Tammy Peyper, head of investor capability at the Financial Markets Authority, said most people would likely see modest investment returns compared to previous years while some would see negative returns due to the market volatility in the first quarter of 2022.

"Your KiwiSaver is a long-term investment and market volatility is a normal part of investing. That is how investing works. If you see your KiwiSaver balance and it has dropped - I always say the very first thing to do is take a breath and not panic.

"As humans most of us are hard-wired to act and especially when things feel out of our control and we desperately want to take control of it because it has such meaning in our life."

But Peyper said pausing and considering what to do was also taking action.

"Often not acting is an active decision. Jumping funds or jumping providers, that feels like an action, but if you take the action of saying 'I am going to sit I am going to focus, I'm going to reach out to my provider. I'm not going to do anything quite yet.' That is an action and I think that is a good way we need to frame it."

She said if people opened their statements and felt ill at the balance their first port of call should be their provider.

"Reach out and contact your provider. That is what they are there for."

When the markets crashed and bounced back in March 2020 research by the FMA revealed high levels of switching between growth and conservative funds, especially by young people.

Tammy Peyper, head of investor capability at the Financial Markets Authority. Photo / Supplied

Peyper said they had not seen that behaviour so far from KiwiSaver members.

"At the moment we haven't seen the massive amounts of volatility that we saw in March 2020 which does give us a sense that people are holding a course."

She put that down to a number of factors.

"I think one of them really you have to look at the social context of when the market fell in 2020 - I think that is very important and it goes back to that whole thing around a need to act in times of crisis.

"It's the same theory behind why we queued up for toilet paper and whatever else at that time. It was that desperate need to have control."

Within six weeks of markets falling they had bounced back and those who moved their money had crystallised losses while missing out on the big returns.

Peyper said if people switched from growth to conservative funds during a market downturn they risked locking in their losses.

"That has an impact on your balance obviously, quite a significant impact that could play out down the line when you want to access that money either for your first home or retirement."

Unfortunately past research has shown Kiwis are not very good at reading their annual statements with surveys showing only 22 per cent read it thoroughly and 54 per cent read it briefly.

Peyper said it was "critically important" people looked at their annual statement or reviewed their KiwiSaver fund at least once a year.

"If you open your statement today you only need to make small adjustments, if you need to make adjustments, compared to the longer you leave it the more difficult or high impact the adjustments need to be made."

The numbers to look out for

Alongside the current balance Peyper said her focus always went to the projection - the amount of money a person could have at age 65 at their current rate of saving and investment.

That calculation can tell you if you are on track by using calculators on sorted.org.nz to work out how much you would need to live off in retirement or by comparing it to the Massey University Retirement Expenditure guidelines.

Closing the gap could mean you need to change fund or increase how much you are contributing - not easy when the demands on your money for today are growing.

"The smallest of changes - $10 a week does make a difference in the long term," Peyper insists.

She also urged members to check their fees and make sure they were on the right tax rate, and that they were getting the Government's annual contribution.

Putting in around $20 a week ensures you get a maximum government contribution of $521 a year. But every dollar counts - with every dollar up to $1042 attracting 50c from the Government.

The KiwiSaver contribution year runs until June 30 so as long as people contribute $1042 by then they will get a maximum from the Government.

"That really is the minimum people should be doing."

Check the fund you are in is still appropriate, especially if you have been moved since December because you were in a default fund.

These funds are now balanced as opposed to conservative and some members were moved to new providers.

Peyper said it was important for people to know who their provider was.

"If [you are] in a balanced fund it is important to understand what that actually means."

The general rule of thumb is if you have less than five years until you plan to access the money either for a house or retirement it should be in a conservative fund, five to 10 years a balanced fund and 10 years plus a growth fund.

Peyper said it was important for people to check their account at least once a year.

"I think it is about embracing the information. A lot of people ignore it." But she says knowledge is power.