With roughly 62 percent of all Kiwi invested in KiwiSaver, it’s incredible to see how KiwiSaver has evolved over the years – it’s a key tool for people to fund their retirement and, for many, their largest asset after the family home. David Callanan, General Manager Corporate Trustee Services, shares his key takeaways from the newly-released Annual KiwiSaver Report.
There are now 3,334,654 investors in KiwiSaver, with the majority actively contributing to growing their retirement savings.
The Annual KiwiSaver Report, published by the Financial Markets Authority (FMA) is out now – what are my key takeaways?
1. The average balance has increased
The average balance has increased to $33,514, up 16.5 percent from the previous year. This is fantastic news. For many people, their KiwiSaver account is their largest asset after the family home. It’s their first investment, and likely most substantial over their lifetime. KiwiSaver forms a key role in saving for retirement and younger generations have now grown up with KiwiSaver from the start of their working life. The higher the average balance, the better off everyone will be, so it’s great to see it’s growing.
2. KiwiSaver hardship withdrawals have increased too
The number of Kiwi accessing their investment for significant financial hardship has increased. This is attributed to the current challenging economic environment and cost of living.
Significant hardship withdrawals have grown to 29,242, up 60 percent from 18,291 last year. The total amount withdrawn was $264.3 million, an average of approximately $9,000 per withdrawals.
The FMA notes that while this is a significant increase, the number of people making hardship withdrawal this year still represents less than 1 percent of all KiwiSaver investors.
As a supervisor, we play a key role in this decision-making process. We are highly conscious these situations call for quick action, to ensure funds get to those who urgently need them. It is work that combines both regulatory rigour and human empathy. Decisions are always made in the best interests of the individual investor so that they are not disadvantaged or lose their livelihoods, and their investment will be available for use in their retirement.
3. More focus on ethical investing
The increased focus on ethical investing comes as no surprise but is positive to see.
The report says that funds under management labelled “socially responsible” have increased over 30 percent year on year to $1.4 billion. The number of people choosing these values-based funds has grown slightly since last year from 45,495 to 47,754.
That’s reflected in the continued growth of the ethical investment market in New Zealand, with more people prioritising investing responsibly, and interest in environmental, social and governance (ESG) factors on the rise.
The introduction of mandatory climate disclosures is bringing greater transparency to financial markets for both climate related-risks and opportunities. Many of our clients have made significant progress in ESG, integrating responsible practices into their investment approaches.
We know investors are becoming more mindful about ethical investing, particular younger generations who want to know their money is being invested in ways that could have a positive social or environmental impact, while still receiving good returns.
4. More fit-for-purpose processes
The report outlines some providers now enable regular (for example, fortnightly) drawdowns to supplement retirement incomes.
This is good news and an important evolution of KiwiSaver. When people withdraw their KiwiSaver when turning 65, they need the right processes in place to support them through this.
Every year, more and more people will be using their KiwiSaver investment to help fund their retirement. Fund managers need to make sure options are available to turn capital into regular income, rather than just a lump-sum withdrawal.
This feature will continue to be more important given our ageing population. By 2040, those aged over 65 could reach 1.3 million, according to Stats NZ. Currently there is about 842,000 people aged 65. Those are large numbers of people who will be navigating withdrawing, and then spending and managing, their KiwiSaver investment through their golden years.
5. More investors in a growth fund
The report says growth funds now represent 46 percent of total funds under management, with $51.4 billion invested, and a total of 1.53 million investors selecting a growth fund. This has grown rapidly over recent years, more than doubling from $24.5 billion in 2021.
Younger people – those with longer investment horizons – are likely best suited to growth funds as they have more time to weather the market ups and downs.
We’ve noticed this change too, with many fund managers offering more diversity in the funds – and shares – available to Kiwi investors as the KiwiSaver and investing landscape evolves and innovates.
The FMA attributes this to investors being more comfortable with the “long-term nature” of KiwiSaver, now in its 17th year.
The report once again continues to show the importance of investor engagement and education of KiwiSaver, to support people to get the most out of their investment.