KiwiSaver hardship releases spiked about 50 per cent in March in a likely preview of more serious drawdowns ahead.
According to the latest Inland Revenue Department (IRD) KiwiSaver statistics, almost 2,000 members siphoned off a collective $12.7 million of hardship withdrawals in March – up from the annual low of about $8.4 million and 1,500 members the previous month.
And as political pressure builds to loosen the KiwiSaver hardship withdrawal rules as per recent Australian superannuation moves to help combat COVID-19 household financial bottlenecks, the outflows can only increase.
In the first two weeks following the introduction of the Australian super hardship special some 950,000 members withdrew almost A$8 billion. Under the Australian rules, any super fund member hit by COVID-19-related income loss can withdraw A$10,000 tax-free before June 30 and a further $10,000 between July 1 and September 24.
The latest IRD KiwiSaver hardship figures suggest demand is brewing for early release, compounding the effect of both recent investment losses and rising first-hone withdrawals.
First-home KiwiSaver withdrawals also leapt higher in March to a record level of almost $152 million (spread among close to 4,800 members). Over the 12 months to March 31 this year about 40,000 members tapped close to $1.5 billion from KiwiSaver to fund house purchases.
Furthermore, the number of KiwiSaver members on contribution holidays rose sharply in March to 138,441 – an increase of roughly 5,500 on February and a new 12-month peak for a statistic that has been declining over the last couple of years.
Tumbling investment markets in March also saw total KiwiSaver funds under management (FUM) covered by Morningstar fall from over $63.4 billion at December 31 last year to about $59.1 billion at the end of the March quarter.
(Morningstar reports on more than 90 per cent of KiwiSaver by FUM although the research house only includes 17 of the 30 or so providers in its survey. Total KiwiSaver FUM as at the end of last year totaled about $66.2 billion.)
During the March market mayhem KiwiSaver investors also shifted over $1 billion from growth to conservative options, Morningstar Asia-Pacific data director, Greg Bunkall, told Investment News NZ last month.
Bunkall said anecdotal evidence from scheme managers suggests that a rush of members headed back into KiwiSaver growth funds post March 31 as rebounding markets triggered ‘fear of missing out’ behaviour.
He said KiwiSaver members trying to time the market could be vapourising “tens of thousands of dollars” of their long term savings.
Despite some variation among similar risk-weighted portfolios, Bunkall said the Morningstar March quarter KiwiSaver survey showed returns conforming to type during the three-month period.
Average quarterly performance for diversified KiwiSaver funds ranged from “2.2% for the Conservative category to -14.5% for the Aggressive category”, the report says. Best-to-worst fund returns in the March quarter spanned 4.6 per cent to -23.2 per cent.
Almost all of the 17 providers reporting to Morningstar also saw total FUM decline during the three months to March 31 with the exception of BNZ, the Pie Funds Juno KiwiSaver and the recently-launched Pathfinder-run CareSaver scheme.
CareSaver, which targets ‘ethical’ investors, grew from $11 million at the end of 2019 to more than $18 million by March 31. The Pathfinder scheme racked up another first in the quarter with an investment in NZX-listed payroll software firm, PaySauce. According to a release, CareSaver – the first institutional investor to take a stake in the company – tipped in $405,000 into the Wellington-based firm’s March equity issue, which raised about $1.2 million in total.
But as CareSaver joined the Morningstar survey another long-term incumbent in the report, NZ Funds, dropped off the report.
“NZ Funds have decided not to submit information to our database as of March 2020 and have been removed from the performance tables,” the Morningstar survey says. The NZ Funds KiwiSaver scheme reported about $300 million under management at the end of last year.
Meanwhile, Morningstar marked the NZ investment industry down in part two of its latest Global Investor Experience Study published last week.
NZ was graded ‘below average’ for regulation and tax by Morningstar, largely due to the lack of incentives for long-term savings and “light-handed” retail investor protections that have “caused some issues relating to managed funds and adviser misbehavior”.
The latest study follows on from the Morningstar ‘fees and expenses’ report released last September that rated NZ above average in the category.
“… a handful of markets that received Top or Above Average grades in the Fees and Expenses chapter—like Australia, New Zealand, and the US—did poorly in the Regulation and Taxation section,” the Morningstar report says.
Previously bundled into one publication, the researcher split the Global Investor Experience Study into four components for the latest edition with the final two sections – covering disclosure and sales, respectively – due for release later this year.