Dollars & Sense: What is a KiwiSaver fund risk rating and why does it matter?

Tuesday, 5 August 2025

The opposition leader attacked the Government's new KiwiSaver policy, as well as the pay equity changes in the Budget.

Senior business reporter Rob Stock answers your money questions.

Imagine that you one day discovered that the speedometer in your car was wrong, and that when it said you were going at 60kph, you were actually barrelling along at 70kph. You wouldn’t be best pleased, I imagine.

Well, this is what has happened to investors in some KiwiSaver funds.

All KiwiSaver funds have a risk weighting of one to seven, supposed to indicate their relative riskiness.

One is for the likes of cash funds, and seven for “aggressive” funds invested entirely in relatively small numbers of company shares.

Got a money question for Rob? Send it to us at sundaymagazine@stuff.co.nz

They exist because KiwiSaver was designed to be sold by the likes of banks without them needing legions of financial advisers.

Banks were to make personal advice available, if asked, but not have to give it to everybody.

What is a risk rating and why does it matter?

They developed online tools to help people choose funds best suited to them. Risk ratings were supposed to help savers make choices, paired with “recommended” minimum investment periods (“minimum investment time frame five years”, for example).

But the ratings aren’t like the speedometer on your car where 70kph is always 70kph.

They are calculated based on funds’ past performance over five years. So, should the fund have had a rocky period, the risk rating could go up.

This happened. Many conservative funds once rated three, and are now rated four, arguably revealing the true level of risk of these funds.

This matters. A recent case I reported on involved a retiree intending to buy a home withdrawing money from a workplace super scheme, and putting it into his (unnamed) bank’s “lowest risk” KiwiSaver fund. This was in 2021.

The fund was invested in a mix of cash, and bonds, so it was probably a conservative fund. Interest rates were low at that time. When interest rates rise, bond values fall. Banks knew this, and were predicting increases in interest rates.

These increases happened, and the fund fell in value, meaning the chap could buy less house. The retiree complained about the advice he got from the bank, but the Banking Ombudsman rejected his complaint.

Fast forward to last week. The Financial Markets Authority put out research, based on the fund risk ratings, saying KiwiSaver investors were taking on more risk. Some of this clearly did not reflect the intentional choices of investors, but was the result of fund ratings changing. I had a lot of sympathy for the investor, and felt the advice he got from the unnamed bank was lacking.

There are lessons for us all.

1. Ideally, KiwiSaver decisions need personalised advice.

2. Advice on offer from banks can be pretty weak.

3. The information KiwiSavers get, including the risk ratings, is partial, hard to understand, and, at times, potentially misleading.

Be aware.

The information in this column is provided for general information only and is not intended as financial advice. If you require expert advice we encourage you to seek assistance from a professional adviser.