The economic crisis and increasingly low interest rate environment have prompted people to make a range of sometimes contradictory financial decisions, according to new KiwiSaver data.
While a high portion of KiwiSaver investors panicked when share markets plummeted in March and switched to more conservative funds, those eager to enter the property market for the first time didn't hold back.
First-home buyers see opportunity
The value of KiwiSaver withdrawals by first-home buyers increased by 25% in the 2020 financial year.
First-home-buyers withdrew $1.2 billion in the year to March 31, according to the Financial Markets Authority’s (FMA) annual KiwiSaver report released on Thursday.
This was equivalent to 1.9% of the $62.0 billion of KiwiSaver funds under management as at March 31 - a slightly larger percentage than the 1.7% a year earlier.
More up-to-date Inland Revenue data shows there was a spike in withdrawals in March 2020, a dip in April and May, and then a recovery in June, July and August.
KiwiSaver withdrawal data matches bank lending data showing first-home buyers playing an increasingly active role in the housing market.
They accounted for a near-record 19.8% of new mortgage lending in August, contributing to the value of mortgage lending across the board reaching a record high for an August month.
‘Investing 101’ ignored
Elsewhere, the FMA’s KiwiSaver report shows the onset of Covid-19 prompted knee-jerk reactions from a relatively high number of KiwiSaver investors.
Investors switched $7.7 billion of assets between KiwiSaver funds in the year to March 31 - more than twice as much as during the previous year.
Of the $62.0 billion of KiwiSaver funds under management, 12% was switched between funds. In 2019, this portion sat at 6%.
The total value of assets in conservative, cash and fixed interest funds increased by $1.5 billion in the year to March, while the total value of assets in growth, balanced and shares funds decreased by the same amount.
FMA Director of Regulation Liam Mason said this level of switching showed there was still more work to be done preventing people from using their retirement savings to try to time the market.
“If the market goes down and you sell, and then the market goes back up and you buy in again, you’ve just locked in all those losses. And I think that might be the story for some,” he said.
While the FMA doesn’t yet have data on the months following March, Mason said anecdotal evidence suggested people started switching back to higher-risk funds relatively quickly.
Indeed, retail investors around the world piled into the share market during this time.
Mason said the FMA was wary of how the low interest rate environment was affecting investor behaviour. He was particularly worried about it from the perspective of those in search of yield potentially falling prey to scams (outside of KiwiSaver).
As for the high level of KiwiSaver switches, Mason recognised the ease of being able to do so online was a contributing factor.
On the flipside, he noted technology made it easier for providers to reach their clients; in some cases, prompting them to consider their risk profiles, as well as the risk of locking in losses when switching funds.
Hardship withdrawals subdued
Turning to hardship withdrawals from KiwiSaver, Inland Revenue figures show between about 1600 and 2100 people made such withdrawals each month between March and August. This was only slightly higher than pre-Covid levels.
However the value of these withdrawals was up more significantly from around $9 million per month pre-Covid to around $13 million per month between March and August.