New Zealanders have more riding on the sharemarket than at any point in KiwiSaver’s history, and a run of nervous trading overseas has money experts asking how savers will cope the first time their balances fall hard and stay down.
KiwiSaver held about $138.8 billion at the end of March, according to figures compiled by Plan For Life from Reserve Bank data, spread across roughly 3.3 million members. The scheme, launched in 2007 out of the Clark and Cullen surpluses, is approaching its twentieth birthday, and for most of the past five years it has delivered strong, steady gains. That is the problem, according to the specialists interviewed this week. Good times build expectations, and expectations are fragile.
The timing of the warning is not accidental. Global markets have turned choppy in July. A sell-off in artificial intelligence and computer chip shares has dragged Wall Street lower, with the Nasdaq Composite sliding as investors question whether the enormous sums being spent on AI will pay off. The newly listed rocket company SpaceX has been hit hardest, shedding hundreds of billions of dollars in value in a matter of days after a soaring debut. Oil prices have climbed again as the conflict between the United States and Iran drags on. None of that is a crash, but it is a reminder that the long upward run cannot last forever.
Susan Edmunds, writing for RNZ, set out the worry plainly. Members who joined during or after the pandemic have mostly known rising balances. Many have never watched a large sum shrink week after week with no obvious floor. The last genuinely long downturn was the global financial crisis, and back then most people had only been in KiwiSaver for a year or two, so the dollar losses were small enough to shrug off. Today a mid career saver can have six figures at stake.
Gertjan Verdickt, a senior finance lecturer at the University of Auckland, said the danger is human nature rather than the market itself. “People hate losing 1 percent way more than they love winning 1 percent, so from that standpoint, there will be a lot of people that will panic, if there are troubles in paradise, especially if they are longer than expected,” he said. That instinct, known as loss aversion, is what drives savers to switch from a growth fund to a conservative one at exactly the wrong moment, turning a paper loss into a real one and missing the recovery that usually follows.
Rupert Carlyon, who founded the provider Koura Wealth, said the shock would come from how slowly a serious slump can unfold. “I do think people will be surprised, if we go through a 2007/8-style event, where it was a slow drift down for almost 18 months, before we bottomed. People will be shocked,” he said. A sudden plunge, like the one in early 2020, is frightening but quick. A grinding decline that lasts more than a year tests patience in a different way.
Part of the trouble is that recent returns have reset what people think is normal. Dean Anderson, founder of Kernel, said savers can start to treat unusually good years as a baseline. “I am conscious that investors start to form expectations that a double-digit annual return should be expected,” he said. When the market fails to deliver that, disappointment can tip into panic.
The providers’ message to members is to look past the day to day noise. Ana-Marie Lockyer, chief executive of Pie Funds, said the point of the scheme is the long haul. “The key message is that KiwiSaver is a long-term investment. Markets move in cycles and periods of weaker returns are a normal part of investing,” she said.
Aaron Gilbert, a professor of finance at AUT, made a similar point about where savers should keep their eyes. “Ultimately, the key message is that it is not your balance today that matters most, but your balance at retirement,” he said. For a 30 year old, a bad year now barely registers by the time they stop work. For someone close to retirement the calculation is different, which is one reason default funds automatically shift older members into more cautious settings as they age.
The wider figures show why the question matters. KiwiSaver funds under management fell about 2.2 percent in the March quarter, with investment losses and transfers taking roughly $4.2 billion off the total, a reminder that balances can and do go backwards even in a fairly calm year. The five biggest providers now look after around $88 billion between them, so how their members behave in a downturn has consequences well beyond any single account.
Nobody interviewed was predicting a crash, and a wobble in overseas tech shares is not the same as a New Zealand recession. But the experts agree the real test of KiwiSaver has not arrived yet. The scheme has never carried this much money through a long, drawn out fall, and the biggest risk may not be the market at all. It may be the temptation to do something rash while it drops.
Have you checked what type of KiwiSaver fund you are in, and would a long downturn change how you invest? Share your thoughts in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
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