KiwiSaver funds: A pandemic turn could have prevented thousands of people from benefiting from the rebound

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Thousands of young New Zealanders may have missed out on investment gains since swapping KiwiSaver funds earlier this year.

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Data provided to the Financial Markets Authority (FMA) by 11 KiwiSaver providers revealed that 12,700 people aged 26 to 35 switched from development to cautious funds as the pandemic caused a dramatic drop in global investment markets.

However, the authority discovered that all of these individuals have not turned around, implying that they would have skipped the recovery of financial markets later in 2020.

Gillian Boyes, FMA manager of investor capabilities, advised young New Zealanders to check their KiwiSaver statements to insure they were in a fund that meets their long-term investment objectives.

“Generally speaking, you should be in a high-growth fund the younger you are and the further you are from retirement.”Growth funds offered the best way to maximise returns, and although the balance could fluctuate, young people had plenty of time before retirement to make up for any declines, she said.

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Younger people were more likely than older people to move assets, which Boyes attributed to their lack of investing expertise.

“For this group, it’s the first time they have seen a major market downturn. We know that young people are not very engaged with KiwiSaver and they don’t understand it,” she said.

“We know that they are high users of digital technology so it’s very easy to switch.”

She said she suspected some people had not switched out of conservative funds because they had low tolerance for risk, but for many others they had simply forgotten about making the change in the first place.

The FMA launched a new campaign encouraging young people to engage more with their KiwiSavers, but Boyes said there was a need for providers and employers to take more responsibility for educating people about the scheme.

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