Helen Twose 's Opinion

Personal finance and KiwiSaver columnist at the NZ Herald

Helen Twose: KiwiSaver funds held in trusts give protection

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Account in own name is not tied to the fortunes of an employer or at risk should a scheme provider collapse.

While the provider is responsible for administering and managing the funds, KiwiSaver funds are held in a trust by the trustee. Photo / Thinkstock
While the provider is responsible for administering and managing the funds, KiwiSaver funds are held in a trust by the trustee. Photo / Thinkstock

When I lived in the UK my then employer, Woolworths, went bust.

It also meant the Woolworths workplace pension scheme I'd invested in collapsed at a time - late 2008 - when the state of the sharemarket meant the fund was worth less than it needed to pay out.

Fortunately the UK government's Pension Protection Fund was in place and while we didn't get all the money that was owing to employees, we got a fair chunk back.

What, if any, protections are in place for KiwiSavers in the event of a provider or fund collapse?

KiwiSaver is a well-regulated and well-designed savings scheme.

It is not tied to the fortunes of your employer; it is an account in your own name that you can take to the best available provider.

While the provider is responsible for administering and managing the funds, KiwiSaver funds are held in a trust by the trustee.

This gives investors protection in the event of a provider collapse through insolvency.

An investor may suffer losses if the underlying investments in their KiwiSaver fund experience market losses.

But a fund collapse is unlikely given the level of investment diversification you should expect from a properly managed, investment fund.

However, like all investments there are no guarantees.

There is a raft of legislation that helps protect KiwiSaver investors and these regulations are monitored by the Financial Markets Authority with the continuing oversight of government departments.

All providers need to comply with the regulations and the requirements for strong governance.

Licensed trustees are there to provide another layer of day-to-day monitoring, oversight and protection for members.

Some responsibility also rests with individual members to research and review their chosen provider.

New regulations on reporting and disclosure come into effect in July that will make it easier for people to compare and contrast providers.

The stability, strength and track record of any provider are important considerations for members.

The various layers of protection and the commitment of providers to make KiwiSaver more transparent and easy to understand should give investors growing confidence that these sorts of collapse are unlikely, outside a catastrophic market event.

•David Boyle, ANZ Wealth general manager funds.

Q: How can I make some more money for my retirement, over the next 10 years, while getting the invalid's benefit?

I joined KiwiSaver about a year ago, and have just over $5000 saved in an ANZ account and KiwiSaver collectively.

Depending on your particular skill set there are a number of ways to enhance your income, and by definition your savings, as it appears that you have a surplus now:

•Go to the Winz website and go through the A-to-Z list of entitlements to see if there are any benefits you may be entitled to that you are not receiving.

You may be pleasantly surprised.

•Are you able to work at all? Winz allows you to earn up to $5200 a year and your benefit will not be affected.

•Make sure you invest the maximum of $1042.86 a year to get a full share of the member tax credits you are entitled to ($521.43).

•Check the risk profile of your KiwiSaver fund - is it a cash or fixed interest fund?

It is possible to increase your return by including some shares in your portfolio by changing the risk profile of your fund.

Research shows that exposure to shares increases your return over the long term but be aware that share values can be volatile so the capital value of your KiwiSaver fund will vary according to how well, or poorly, the fund performs over the next 10 years.

• Educate yourself about the sharemarket - read up about investing in shares.

There are plenty of helpful books that will explain the do's and don'ts of investing in shares.

Invest a small amount into a well-known company, and even though you will have to pay minimum brokerage to buy these shares, a quality share will pay you an income called a dividend as well as offer the possibility of an increase in value.

Some of the dividends being paid by well-known companies listed on the stock exchange are higher than the low interest rates now paid on bank deposits.

•Peter Christensen, Camelot Group chairman.

Q: My daughter turned 18 last September.

She was enrolled in KiwiSaver shortly after its launch for $20 plus the $1000 kickstart.

She does not receive any employer income.

Is she entitled to the full tax credit this year or is it pro-rated on days since her birthday (in the same way as someone joining part-way through a year will only get part of the credit)?

If she receives a student Study Link allowance does that qualify for an employer contribution in the same way that Winz payments apparently do?

Assuming she deposits the proportionate value of the annual amount to receive the full tax credits your daughter will be entitled to receive a proportionate share of the member tax credits.

For example, not knowing her actual birthday but assuming 303 days of membership if she deposits $865.67 (being approximately 83 per cent of $1042.86) she should receive member tax credits of the same proportion (being approximately 82 per cent of $521.43 or $427.57). It appears that if you receive an income-tested benefit from Winz then you are unable to have the contributions deducted from your benefit.

Our understanding is that this also applies to Study Link allowances.

• Peter Christensen, Camelot Group chairman.

•Disclaimer: Information provided is stated accurately to the best of the respondent's knowledge at the time of publication. It is general in nature and should not be construed, or relied on, as a recommendation to invest in a particular financial product or class of financial product. Readers should seek independent financial advice specific to their situation before making an investment decision.

To have your KiwiSaver questions answered by the Herald's panel of industry players email Helen Twose, helentwose@gmail.com

- NZ Herald

Helen Twose

Personal finance and KiwiSaver columnist at the NZ Herald

Helen Twose is a freelance business journalist who writes regularly about KiwiSaver and entrepreneurial companies. She has written for the Business Herald since 2006, covering the telecommunications sector, but has more recently focused on personal finance and profiling successful businesses.

Read more by Helen Twose

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