FMA’s KiwiSaver 2022 Annual Report Shows Scheme’s Resilience

KiwiSaver funds under management have shown net growth of 10% to $89.7 billion for the year ended 31 March 2022, despite the retirement savings scheme navigating another turbulent period for global markets. After its 15th year, KiwiSaver’s size is now equivalent to around 25% of national GDP (up from 15% of GDP in 2017).

The KiwiSaver Annual Report 2022 by the Financial Markets Authority (FMA) - Te Mana Tātai Hokohoko shows member balances remained buoyant and fund switching returned to normal levels, amid deflating global markets, inflation levels climbing, and uncertainties over supply chain shortages and war in eastern Europe.

Paul Gregory, FMA Director of Investment Management said: “The data in this year’s KiwiSaver annual report shows the strength of KiwiSaver as a long-term savings vehicle, with resilience to volatility a necessary feature of its design. While we celebrate World Investor Week, the report reinforces our messages about taking a long-term view for investing.”

The total amount invested in growth and balanced funds surged 17.7% and 20.8%, respectively, while assets in conservative funds fell 14.4% in part due to bonds suffering significant price declines but also as around 300,000 default members were moved from conservative funds to balanced funds under the Government’s new default provider settings in place from 1 December 2021.

The shift in the amounts invested across the different fund types is consistent with a longer-term trend where the numbers of investors in conservative funds (excluding previous default members) has shrunk 3.6% from 2017 to 2022 while growth fund membership has ballooned 54.8% in the same period, now accounting for nearly half of overall membership.

Contributions drive growth in year of lower returns

The 10% net growth in funds under management was largely driven by $11.3 billion in contributions from 1,938,233 members. This included a significant 20.3% increase in lump sum contributions, totalling $2.2 billion.

Meanwhile, investment returns were $1.3 billion, a sharp fall on 2021’s extraordinary $13.2 billion gain, yet up on 2020’s COVID-induced $820 million loss, and in line with the more ‘normal’ year to March 2019, which gained $3.8 billion.

The average annual fee paid by active members¹ rose by just 2.1% to $245, while the average annual fee paid by default members fell 11.1% to $64.

Mr Gregory said: “New Zealanders have become increasingly aware of the role KiwiSaver can play in their financial well-being and preparedness for retirement, particularly when the likelihood of owning a home becomes less certain. This is the context for our work in KiwiSaver, including focusing on the value members receive for the fees they pay and the risk they take. This conversation about value is holistic in its approach, considering KiwiSaver providers’ investment returns, the help provided to members for good investment decisions and other value-adding features and services.”

Orderly default member transition

The report noted the orderly transition of around 300,000 default members to their new balanced funds after the new default provider settings came into effect in December 2021. Costs were minimal, particularly relative to the expected long-term benefits of the changes.

This coincided with a 71.8% year-on-year increase in the number of default members who made an active choice to 77,886 – largely thanks to heightened engagement between default providers and members ahead of the changes.

The default changes influenced the number of transfers between different KiwiSaver providers. Excluding this movement, ‘active member’ transfers rose 15.8% year-on-year to 113,782 – albeit to around the same level as previous years.

Other FMA priorities for KiwiSaver over the last year included:

1. Guidance on advertising of financial products – ensuring marketing materials were consistent with ‘fair dealing’ and disclosure obligations, such as balancing risk and reward and ensuring forecasts were based on reasonable assumptions.
2. ESG consumer research and industry review – research shows most Kiwi investors prefer their money to be invested ethically but relatively few have selected a fund manager based on ethical credentials. Investors find the category difficult to navigate and an FMA thematic reported found fund managers are not sufficiently explaining or supporting the ESG features and benefits of their funds.
3. Annual KiwiSaver campaign – the FMA’s consumer campaign in mid-2022 encouraged members to engage with their annual statements, with particular attention on whether their projected balance upon reaching 65 is sufficient. Later research showed a slight lift in statement readership and an increase in those who rated their projected retirement balance as a useful aspect of their statement.
4. Liquidity risk management – a thematic review published in mid-2021 found fund managers generally appear to have an overly positive view of their liquidity risk management capabilities. The FMA advised managers against complacency and expects them to complete liquidity stress tests at least annually.

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