KiwiSaver 'collapsing faster than the Black Caps in the 90s'

Monday, 17 December 2018

There are still lots of gaps in our understanding of KiwiSaver. First published in 2018.

Shane Henderson reckons his KiwiSaver account has been 'collapsing faster than the Black Caps in the 90s'.

Problem is, he's trying to use it to buy a house.

The West Auckland man wants to use his KiwiSaver money as part of the deposit.

But in the past month or two, the balance has dropped about $2000.

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Shane Henderson wants to use his KiwiSaver money as part of the deposit.

Henderson's issue is that he is in a growth fund. It was chosen at a time in his life when he had given up on home ownership. Instead, he figured that the KiwiSaver money was something he'd access at some point in the distant future.

A growth fund is right for that - it is designed to give better investment outcomes over the long term but can suffer much more short-term volatility than a conservative option.

People planning a first-home purchase are usually advised to put their money in a less risky fund - usually cash or conservative - so there's less chance of a share market downturn hitting the balance just as it was needed.

Henderson said he did not realise until it was too late.

'Now I've got a partner and a child, life changes.'

He said they would be able to buy anyway, but it was a bit tougher.

It is a situation that could be repeated across the country if savers have listened to advice that young people should take more investment risks - without hearing the caveat that plans for a home purchase could change that.

'It's quite possible that people have been chasing returns and would have wound up in funds that would be more appropriate over the long term,' said Tom Hartmann, managing editor at the Commission for Financial Capability.

'People may also not be aware of the key differences between a savings account and an investment. With savings it's about 'how much do I have' but with investments it's 'how much is it worth' and 'how much is it worth right now'.'

He said, if someone was planning to use the money soon, they could still consider shifting to a conservative fund. If they had more ability to wait it out, they could stick with the growth fund to benefit from its eventual recovery.

Blair Vernon, managing director of KiwiSaver provider AMP, said it was understandably upsetting when funds went up and down with the cyclical movements of the markets.

'That's why it's so important that members are invested in the right type of fund to suit their savings goals, and that they change their investment options as their needs change. For example, first-home buyers might choose to invest in a more conservative fund, which are typically less impacted by market downturns and may provide more stable returns in the short or medium term,' he said.

'If members do withdraw KiwiSaver funds for a deposit, it's important they continue to make regular contributions and get back on track with their retirement savings. If you're in your 20s you still have time to recommence your KiwiSaver contributions and accumulate savings to fund your retirement. If you're late 30s or older, chances are you'll be withdrawing a higher amount of savings and you therefore have less time before retirement to recoup them.

'The reality is that it's always been challenging to save for a deposit, but because of KiwiSaver more New Zealanders already have a level of savings, that might not otherwise exist, which they can now use to get into the property market.'

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