KiwiSaver has continued to grow despite market volatility caused by Covid, according to the FMA’s KiwiSaver Annual Report.

Total funds under management increased 8.7% to $62 billion, compared to 2019 when total assets grew by 17%. Meanwhile, total membership increased 3.1% to three million, the same growth rate as 2019.

Many KiwiSaver funds dipped after world markets experienced a sharp decline in the beginning of March 2020. Over the year, KiwiSaver investment returns fell 122% from $3.8 billion to -$820.9 million, this decrease followed several years of double-digit growth in investment returns. Since the end of March markets have recovered.

Liam Mason, FMA director of regulation, told Good Returns that he was not surprised by KiwiSaver’s resilience under pressure, “this is a long-term savings vehicle. It’s set up to be retirement savings so it’s built to be able to perform throughout good years and bad.”

Mason went on to say that the success of KiwiSaver over Covid was a “story of the importance of contributions. Despite investment losses KiwiSaver still grew. Member and employer contributions is what made KiwiSaver grow this year. In good times or bad, contributions add to your savings.”

The report also commented on the high level of fund switching that KiwiSaver providers saw during the economic hit in march. Mason has said that the FMA are currently researching into the switching behaviour of members seen during this period to better implement education surrounding investment resilience. They are also researching the kind of help that providers offered during this period to make sure their clients made good switching decisions.

“Education is really important. The challenge that we saw through March was that very often your decision about your risk appetite and therefore your fund choice is made in the good times. For a number of people that theoretical risk appetite did not stand up against the reality of a volatile market.”

David Boyle of Mint Asset Management told Good Returns that “the switching is being driven by a whole lot of reasons and not just performance. It could also be advertising. There is also a lot more aggressive behaviour in the market. We are entering the next stage of KiwiSaver’s evolution.”

“We are in uncharted waters, we have two elections coming up, we have quite a lot of storms on the horizon which will only make investors more uncomfortable when they see negative returns. This is where the work needs to be done by KiwiSaver providers to help members to avoid realising those losses and reinforce the long-term nature of what KiwiSaver is about.”

Another important aspect raised by the report was the issue of fees. Mason said while most fund balances grew over the year due to contributions, fees were brought into stark relief because members would have likely seen negative returns for the first time.

The way that active and passive management corresponds to fees has been a focus for the FMA for some time, Mason says that there is more work to be done. “We will be looking further into how a fund describes an investment style and what they are actually delivering. If there are cases where that is misleading then we will act to correct that.”

Beyond this the FMA will also be looking into “additional services” that funds promise such as, impact investment, ESG commitments and extra advice. Mason says that “often these additional services come with a charge. We want to explore whether these services equal value for money.”

Regarding providers following through on their advertised promises Mason says, “more people could definitely be called up”.