KiwiSaver During a Recession NZ: What Happens When Markets Fall

When share markets fall, KiwiSaver balances fall with them, by more in growth funds and less in conservative ones. This page shows how past downturns affected KiwiSaver funds, what a fund switch after a fall does to a balance, and how a New Zealand recession differs from a global one. Other KiwiSaver guides are on the KiwiSaver strategies hub.

What Happens to KiwiSaver in a Recession?

KiwiSaver growth and balanced funds invest heavily in shares. When the share market falls, as it does in recessions and financial crises, the unit price of these funds falls and so does your balance. Conservative and cash funds hold more bonds and cash and fall less.

Two sourced examples of past falls (each fund differs):

Falls and recoveries have differed between downturns and between funds, and past recoveries don’t guarantee future ones. Your own fund’s year-by-year returns are in its quarterly fund update, and the KiwiSaver returns history covers the scheme since 2007.

What Switching After a Fall Does

A switch sells your units at the current price and buys units in the new fund. After a fall that turns a paper loss into a realised one:

1. Suppose markets fall 25% (an illustration, not a forecast) → a $100,000 growth fund balance drops to $75,000
2. The member switches to a conservative fund at $75,000
3. Markets recover → the growth fund’s units return toward their earlier value
4. The conservative fund, holding fewer shares, recovers less, so the balance stays well below where it would have been

A fall is a paper loss while you stay in the fund; switching after the fall makes it a realised loss. Switching back later, after prices have risen, means buying growth assets at higher prices. How fund switches are processed and how long they take is covered in changing your KiwiSaver fund type.

Contributions During a Fall

Regular contributions keep buying units, and when unit prices are lower each contribution buys more of them (dollar-cost averaging). Stopping contributions means buying none at the lower prices, and a savings suspension generally stops your employer’s contribution too. Voluntary contributions can be made at any time; see voluntary KiwiSaver contributions.

Fund Type, Time Horizon and Downturns

A fund’s mix of shares, bonds and cash sets how far it can fall. The trade-off is time: a member with decades until 65 has more years for a balance to recover from a fall, while a member close to a first-home withdrawal or to 65 has fewer.

• Close to a first-home withdrawal: a large fall shortly before buying reduces the deposit available, and there may be no time to wait for a recovery. Moving to a lower-risk fund before the money is needed avoids that risk; moving after a fall realises the loss but limits further falls.
• Close to 65: a large fall just before or after starting withdrawals means drawing down a smaller balance (sequence-of-returns risk). How members manage this from 65 is in the KiwiSaver drawdown guide.

The way risk changes with time horizon is set out in conservative vs balanced vs growth by age. Someone who finds a fall hard to live with can reassess their fund type; doing so after markets recover avoids selling at the lower prices.

A NZ Recession vs a Global Downturn

KiwiSaver funds invest globally, not just in New Zealand. A technical New Zealand recession (two quarters of negative GDP growth) doesn’t necessarily mean a growth fund falls much, because the fund also holds US, Australian, European and Asian shares.

A global recession or financial crisis, like 2008–09, affects KiwiSaver regardless of what’s happening domestically. Global share markets drive most of a growth fund’s return.

Summary

What to Read Next

• KiwiSaver Fund Types Explained
• Conservative vs Balanced vs Growth by Age
• Changing Your KiwiSaver Fund Type
• Seven Levers That Change a KiwiSaver Balance
• KiwiSaver Growth Fund
• Average KiwiSaver Balance by Age NZ