KiwiSaver Holds Firm Through Volatility And Reaches $94BN In March 2023

Growth funds hit $40BN and fee revenue decreases

The FMA’s latest KiwiSaver Annual Report for the year to 31 March shows that KiwiSaver has held firm through a continuing period of market volatility. Total funds in KiwiSaver have grown again this year, by $4 billion, due to contributions of $10.5bn from members, employers, and government.

This growth is despite $1.9bn in investment losses at the March year end, the fourth time total investment returns have gone backwards in the scheme’s 16-year history. This points to the importance of ongoing contributions from investors, employers and the government in building long-term retirement savings. Investment markets have been fairly buoyant since March 2023 and some people will have now recovered those investment losses.

Total money in KiwiSaver grew to $94bn, up from $62bn in 2020, and six times the total from 2013. Money in growth funds tipped over $40bn this year, doubling the size of those funds since 2020, while assets in single sector funds labelled, ‘Socially Responsible’, touched $1bn for the first time.

Total membership has grown around 3% to 3.25 million investors in KiwiSaver.

First year since 2007 fee revenue drops

Total fee revenue deducted from KiwiSaver accounts was $664.1 million, representing an annual 8.1% decrease. It’s the first year since the inception of KiwiSaver that total fees have not risen – the combined effect of lower default fund fees, reductions in management fees by larger providers, some providers removing fixed membership fees altogether, and others not earning the same level of performance fees.

Administration fees charged this year were the lowest ever, at $17.3 million – a 65.7% fall from last year’s $50.3 million, and down 81.2% from their peak of $91.8 million in the year to March 2019.

John Horner, FMA Director Markets, Investors and Reporting, said: “This is an important milestone as we have been encouraging providers to share with their members the economic benefits of scale, through our value for money work. Reducing fees is a meaningful way to do this, because members retain more in their balances to benefit from compounding returns, but value for money is not just about fees. We will continue to work with supervisors to ensure managers demonstrate their value-add to members. The value-add should include investment and risk management competence which contributes to members’ balances, and advice which helps members make good decisions.”

Changing investment profile of KiwiSaver over time

Over the last three years the overall investment profile of KiwiSaver has skewed toward growth, driven by more investors making active choices and the change in default settings from Conservative to Balanced.

Since 2020, the proportion[i] of people in conservative funds has reduced from 35% to 21%. Those in balanced funds has increased from 21% to 30%, with members in the new default fund representing a third of those. Selection of growth funds has increased from 33% to 37% in the last three years.

Looking at this over a 10-year period there is a complete reversal of the earlier preference for conservative, over growth funds: relative to our 2013 KiwiSaver Report, 40% of investors were in conservative funds (including default funds) and 23% were in growth. In 2023 the proportions are 21% (noting default funds are now balanced) and 37%.

Mr Horner said: “Contrasting this year’s report to previous years, indicates how investor behaviour has changed over time, together with the profile of the funds being selected. 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. As investors become more comfortable with the long-term nature of KiwiSaver, there has been a major shift towards more growth-oriented funds over the last ten years.”

Graph of continuing impact of contributions:

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