For many New Zealanders, KiwiSaver is an integral part of their savings strategy, whether for a house deposit, or to carry them through a long and relaxing retirement. So it's little wonder many people have anxiety, and wonder if they can lose their KiwiSaver.
If something were to wipe out your balance, it could put a serious hole in your future financial comfort. But should it be of concern?
Even in a volatile market, how at risk is your KiwiSaver, and how can you best manage that risk? Canstar takes a look at the safety of KiwiSaver investments, and if you are at risk of losing it at all.
Can you lose all your KiwiSaver funds?
In theory, yes. But, in reality, it's unlikely you would lose all of your KiwiSaver.
KiwiSaver is not a savings account. It's an investment fund. The money you and your employer contribute to KiwiSaver is pooled together with other KiwiSaver members' cash and invested into a range of securities, like stocks, property and bonds.
For this reason, your KiwiSaver balance can fluctuate. If the investments are doing well, your balance grows. If the investments fare poorly, your balance drops.
However, KiwiSaver investments are spread across assets with two different risk profiles:
- Growth assets (shares and property) – more volatile, have the potential for large returns and large losses
- Income assets (cash and bonds) – more stable but with less growth opportunity
These two types of assets form the basis of the five basic KiwiSaver fund profiles.
KiwiSaver fund profiles
Each profile comes with a different level of risk/returns:
Defensive fund
A defensive fund holds less than 10% of your investment in growth assets. Instead, it invests primarily in things such as cash and government bonds.
Conservative fund
A conservative funds hold anywhere from 10% to 34.9% in growth assets.
Balanced fund
As the name suggests, this fund is a balance between income assets (such as cash, bank deposits, bonds, and other fixed-interest investments) and riskier growth assets (around 35%-62.9%) such as shares and property. This results in a fund that has a balance of high risk-high reward investments and secure, low-growth assets.
Growth fund
Growth KiwiSaver funds hold a significantly larger proportion of growth assets: 63% to 89.9%.
Aggressive fund
Aggressive KiwiSaver funds are similar to growth funds, but with an even higher share of growth assets (90%-100%).
Because of this diversity of investments, it's very unlikely that you'll lose all of your KiwiSaver funds at once, especially if you're in a defensive, conservative or balanced fund.
Even if you have all your KiwiSaver in an aggressive fund, your money won't be invested in just one or two companies. So the risk of all your investments becoming dud overnight is slim.
However, that doesn't mean that if you are invested in higher risk funds you're immune from losing a considerable amount in a short period of time.
For an example, you only have to think back to the Covid-induced stock market crashes of March 2020, which saw some markets lose 20% over a single day's trading.
How safe is your provider?
KiwiSaver is privately managed by banks and/or investment houses. And there are strict rules in place to ensure that your money is in safe hands:
KiwiSaver providers are regulated
Your KiwiSaver provider has to be licensed by the Financial Markets Authority. Each provider is audited regularly to ensure they are investing responsibly and have the best interests of investors in mind.
Your funds are held in a trust
Your KiwiSaver provider doesn't actually hold your funds. Instead, a third-party trust holds your funds. This means that if the bank or investment house runs into financial issues, or has a Bernie Madoff on staff, it can't just dip into the KiwiSaver funds under its control.
So even if the company in charge of your KiwiSaver goes broke, your money should be okay.
What you should do if you're worried about your KiwiSaver
If you're worried about your KiwiSaver balance, talk to your provider about your appetite for risk and whether they recommend a move to a more conservative fund.
This could be especially pertinent if you plan to make a KiwiSaver withdrawal in the near future, for example as a first home deposit, and don't want a sudden drop in markets to affect your investments.
However, it's worth remembering that returns on conservative funds are limited, and not ideal for long-term wealth building.