12 months to end September 2013

A decade of Kiwisaver has delivered many lessons to investors.

But have they learnt them?

Most Kiwisavers’ experiences over the past 10 full years of fund returns have been positive, but that’s a result of the past six years of stellar sharemarket returns.

The first year of Kiwisaver was a nightmare in the markets thanks to the global financial crisis, and the worldwide recession that followed.

David Scobie from Mercer, who crunched the numbers on the first full decade of Kiwisaver returns, jokes that if the returns of the first and tenth year of Kiwisaver had been switched ‘‘there would have been rioting in the street’’.

Instead of the median Kiwisaver growth fund (the very middle performer of all the growth funds) delivering an after-tax return of 10.1 per cent in the 12 months to the end of September 2017, it would have posted a 14.2 per cent loss.

That assumes a 28 per cent ‘‘prescribed investor’’ tax rate.

‘‘If we had that kind of return over the last year, people’s balances would be a heck of a lot lower,’’ Scobie says.

Imagine starting the year with $10,000 invested, and ending it with a little less than $8600.

As luck (or ‘‘sequencing risk’’) would have it, the global financial crisis struck when Kiwisaver was in its infancy, and account balances were tiny, says Scobie.

So nobody really noticed.

A decade later, with over $40 billion invested, memories of the first year have faded, and a ‘‘remarkably durable bull market’’ has resulted in what Scobie calls ‘‘relatively subdued volatility’’. As a result, Kiwisaver has recently felt like a remarkably safe and steady way to make money.

Scobie says Kiwisaver is a ‘‘long term game’’, and those who have done worst out of Kiwisaver are those who have not contributed, and missed out on government member tax credits as well as sharemarket returns.

Those who have taken a long-term view and invested in higher-risk, higher-return growth funds have done best.

Most Kiwisaver funds had passed their 10-year anniversaries by the end of September, so the 12-month periods to the end of September each year are the periods Scobie analysed.

12 months to end September 2008

The global financial crisis led to a global recession. Sharemarkets fell. The median Kiwisaver growth fund lost 15 per cent of its value, though balances were so low nobody really noticed.

Kiwisaver funds can fall in value, sometimes by a lot. The bombing of the Boston Marathon and US secrets leaker Edward Snowden dominated news. Kiwisavers experienced the second in a run of six great years of enrichment, unless they had put their contributions on hold.

More than 100,000 Kiwisavers had been on a contribution holiday, most for over a year. You have to be in to win.

Default: 4.5%, Conservative: 5.1%, Balanced: 9.5%, Growth: 14.1%