The Most Expensive Five Minutes in KiwiSaver History

In March 2020, as global markets fell sharply on COVID-19 news, around 50,000 New Zealanders logged into their KiwiSaver accounts and switched to a more conservative fund. Most never came back. Looking at the data four years on, that decision, usually made in a few minutes from a phone, is shaping up to be one of the most expensive financial choices a generation of Kiwis will ever make.

What Actually Happened

The Financial Markets Authority commissioned PwC to analyse fund switching across roughly half of all KiwiSaver accounts during the COVID shock. The findings are clear and uncomfortable.

58,356 members made 88,112 switches between February and April 2020, 2.7 times the level of switching seen in the same period in 2019. 70.5% of those switches were into lower-risk funds. On 22 March 2020, in a single day, there were 6,156 switches, the equivalent of around 20 normal days of activity. Only 9.1% of those who switched to a lower-risk fund had moved back into a high-growth fund by August 2020, by which time markets had largely recovered.^[1]

Westpac's own data, released in late 2024, showed that of the 18,140 switch requests it processed in early 2020, 27% of those members had still not moved back to growth-focused investments more than four years later.^[2]

The Cost

Westpac modelled the consequences for a typical KiwiSaver member: median wage, 3% employee plus 3% employer contributions, starting balance of $25,000. The member who switched to conservative in March 2020 and stayed there is on track for $387,938 by 2054. The member who did not switch is on track for $615,423. The difference: $227,485, on a single decision made in a moment of fear.^[2]

Earlier analysis estimated the collective lost gains across the 50,000 switchers at around $3.5 billion over 20 years.^[3]

Why This Happened

The FMA's behavioural research identifies the culprits clearly: action bias, herd behaviour, and emotionally-charged public commentary.^[1]

Action bias is well-documented in behavioural finance. When people feel out of control, doing anything feels better than sitting still, even when sitting still is the optimal action. The PwC analysis found that younger members were the most active switchers: 26-to-35 year-olds were 23% of the sample but made 30.8% of all lower-risk switches.^[1] This is the cohort with the longest time horizon, and therefore the most to lose from a years-long stretch in a conservative fund.

There is no fund switch you can make from a phone in March 2020 that beats a five-minute conversation with someone whose job is to talk you out of it.

What This Tells Us About Advice

The FMA's conclusion noted that members with access to advice were significantly less likely to switch.^[1] This is not because advisers have a crystal ball. It is because the value of an adviser in March 2020 was not about predicting markets. It was about being on the other end of a phone before the switch happened.

Vanguard's research attributes the single largest component of adviser value, approximately 2% per year in net returns, to exactly this: behavioural coaching that prevents emotional decisions at the worst possible moment.^[4]

The Lesson, Simply Put

The mathematics of compound returns punishes panic far more harshly than it rewards perfect timing. A five-year recovery in markets is meaningless to a member who missed it by sitting in cash.

If a switch was made in 2020 and the move back has not yet happened, that is a conversation worth having now. Not because the past can be undone, but because the next ten years still can be.