First home buyers: how to protect your KiwiSaver from coronavirus


First home buyers planning to put their KiwiSaver funds toward a deposit in the near future should talk to their provider about whether to switch to a cash fund to protect their investment from a sharemarket made volatile by the effect of coronavirus.

Tom Hartmann 3Tom Hartmann, editor of CFFC's Sorted website, acknowledged KiwiSaver members could be alarmed to see their balances drop as shares in their funds reacted to the economic effects of the Covid-19. KiwiSaver funds contain a mix of shares and other investments, so balances reflect the movement of the sharemarket. Markets around the world are riding a rollercoaster of ups and downs in reaction to economic fallout as the virus makes its way around the globe.

Sharp drops in fund balances would be particularly concerning to members who had already committed to buying a home and were relying on their KiwiSaver funds to settle offers under contract.

KiwiSaver first home withdrawal applications take up to 10 working days to process. A first home buyer could run into difficulty if the balance of their KiwiSaver account fell to an extent that they could no longer rely on it to meet the payment terms for their new house. They would then need to find the balance of what was owed elsewhere.

Members planning to use their KiwiSaver funds to help purchase a first home in the next few months could be similarly concerned that their balances would drop to a level that would cause their mortgage plans to fall over.

Switching to a cash fund would lock their investment into a low risk fund largely unaffected by the sharemarket. Hartmann says members would trade possible gains in the sharemarket over the next few months for the security of avoiding potential loss, and need to consider whether that move was right for them.

“The key question KiwiSaver members should ask themselves right now is ‘How soon do I need that money?’,” says Hartmann. “If the answer is sooner rather than later, they should talk to their provider about whether they should switch to a cash fund.”

With sharemarkets rising and falling by the day, it would be unfortunate for losses to foil home ownership plans.

Hartmann said members who did not need to access their fund within the next three years were better placed to ride out the current volatility.

“The sharemarket will recover from the effects of coronavirus in time. For most of us, KiwiSaver is a long game and we will benefit from being patient.”