The economic shock of Covid-19 led to a dramatic increase in the number of people switching their KiwiSaver to more conservative funds.
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The Financial Market Authority's (FMA) annual review of KiwiSaver for the year ended March found that the number of New Zealanders who switched funds was up by 54 percent on last year to 256,393.
The Authority's director of regulation, Liam Mason, said a lot of the switches came in March, as peopled panicked when the first Covid-19 began to emerge.
"As world markets dropped we saw a sharp increase in people moving from growth funds and balanced funds into conservative and cash funds.
"That tells us we've got more work to do help investors to see their KiwiSaver as a long term investment and not to try and chase these short term movements in markets."
Returns on KiwiSaver investments plummeted by 122 percent, from $3.8 billion last year to -$820 million.
Since the end of March markets have recovered.
Fund contributions increased by 8.7 percent, bringing the total funds under management to $62 billion.
"The report shows that despite the market losses in March that severely impacted investment returns during the period, KiwiSaver continued to grow due to the contributions from members and employers," Mason said.
"The role of KiwiSaver in our lives and the economy is continuing to grow, with more than $2.5 billion withdrawn this year for retirement and first home purchases."
The average management fees being charged increased on the year by 13 percent to $150 per person.
The FMA signalled it would be putting fees under the spotlight after a report revealed some providers were charging a high price for services they were not delivering.
It said it would be issuing new standard that fees not to be unreasonable.