KiwiSaver withdrawals for major difficulties up 42.8%

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KiwiSaver funds continue to gain momentum after the slowdown caused by Covid-19, with total funds under management reaching $ 81 billion.

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The Financial Markets Authority’s annual KiwiSaver report showed that the strong rebound in the market during the year through March 2021 led to a surge in investment returns to $ 13.2 billion, from a loss of $ 820 million the previous year.

Member withdrawals reached over $ 3 billion, including $ 1.4 billion for first-time homes (up 18.8%), $ 1.2 billion for those over 65 (down 8.3%) and $ 159.3 million for significant difficulties (up 42.8%).

FMA Director of Investment Management Paul Gregory said the past year has been a momentous one for KiwiSaver.

“It was also a year of significant changes in regulatory direction for KiwiSaver providers. We released two important tips for fund managers – one focused on the precise labeling of funds when it comes to fund management. ‘allegations of ethical and responsible investments, the second focusing on value for money.

“Taking into account our directions and the government’s changes to default vendors that take effect in December, we believe both will improve results for investors, with impacts that will be felt over the long term. “

The report also showed that total fee income grew at a slower pace than funds under management due to high returns this year. While total funds of $ 81 billion increased 31.7%, total fee income of $ 650 million increased 20.7%.

Gregory said fee income increased because it was percentage based and was not a sign that fees were increasing.

“Our focus on value for money over several years was based on the fact that vendors generally did not pass on the benefits of KiwiSaver’s increasing scale. More recently, there are encouraging signs: several managers have reduced their investment management percentage fees to increase the value delivered to their investors, ”he said.

Recent government changes to default providers would bring significant value to people in default funds, Gregory said.

The report also showed that only a small minority of investors choose funds explicitly labeled as responsible or ethical, but research has shown that many expect providers to take a responsible approach to investing their money.

There were just over 377,000 fund changes during the year, down 9.3% from the previous year, which covered volatility from February-March 2020, but 57.2% more than the more “normal” year ended in March 2019.

Research commissioned by the FMA found that less than 10% of those who switched to a low-risk fund between February and April 2020 returned to a higher growth fund in August.

Gregory said that meant 90% of their losses were effectively blocked.

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