Coronavirus and KiwiSaver: The mistake that could take years to fix

As COVID-19 rattles markets, causing share prices to fall and KiwiSaver balances to take a hit, a financial expert is urging people to get advice before switching funds.

David Boyle, head of marketing and sales at Mint Asset Management, told The AM Show on Tuesday that after a decade of good returns, the drop in KiwiSaver balances is understandably making members nervous.

"We've had some massive fluctuations over the last two months with COVID-19 and the impacts it's having - it's causing a lot of distress," Boyle said.

While no one likes seeing their balance go down, nervous investors thinking about switching from a higher-risk (growth) fund to a conservative fund are urged to talk to their provider.

"The natural reaction for investors when they see their money going down is to not want to lose any more.

"They put it into cash or fixed interest - the problem is, they've crystallised that loss," Boyle said.

In some cases, members invested in a growth fund might find that short-term losses are around 20 percent.

"Markets have bounced back, but if [members switch] in that down period, it could take them years and years to get back to where they started from," Boyle explained.

He said that people who don't need short-term access to their KiwiSaver funds (e.g. for a first home or retirement) can afford to ride out market fluctuations. But with at least 12 months of low interest rates expected, the financial well being of members nearing retirement is going to be worse in the short-term. 

The concern is that members may decide to switch funds without getting the right advice.

"A lot of providers are getting inundated with thousands of calls a day and [some] can't give advice," Boyle said.

Before switching funds, Boyle urges KiwiSaver members to check if their provider can offer quality advice - or talk to an authorised financial adviser.  Following the show, he suggested asking providers how they're managing the downside risks. 

"This is where you need managers that have the flexibility to pick sectors and stocks and take advantage of prices that are on sale," Boyle said.

People facing financial difficulty can stop contributing to KiwiSaver by asking for a 'contribution suspension'.

"KiwiSaver members are able to just talk to their provider, they can put their contributions on hold and they can restart them whenever they like after that," Boyle said.

In the most extreme cases, members needing financial relief can apply for a KiwiSaver withdrawal.

"It's a last resort and you're affecting your future self's outcome - but if you need those funds, you [can] talk to your provider," Boyle said.

As KiwiSaver is built for retirement, people who need more flexibility or are saving for a different goal could look at a separate managed fund with a different asset mix.

"Planning and getting advice on the right asset allocation when [you] stop earning is important," Boyle said.

"That's when you need your investment to be in the best position possible."  

More information on KiwiSaver funds and providers can be found on Sorted.