KiwiSaver: Shelley Hanna explains the safety of money secured

KiwiSaver schemes are set up as trusts, and your money is pooled with other investors.

Q Lockdown has given me time to think about some different things. One is the security of my KiwiSaver.

My KiwiSaver money is with XXX so I assume an XXX financial wallah has used my money to buy bonds and shares.

Let's say he or she bought 1000 Fletcher Building shares and 1000 Fletcher Building bonds with some of the money.

Who owns those shares and bonds? Are they in my name or are they in XXX's name? If XXX falls over do I keep those shares and bonds, whatever they are worth? Things could get worse, a vaccine may not be perfected for years and some countries may continue doing silly things. This could mean XXX falls over.

You can probably tell I have a great deal of ignorance about these matters and fair to say if Covid-19 hadn't happened I would never have thought about it.

These are good questions. It is very important that long term investments like KiwiSaver are sufficiently secure so that investors can get on with their lives without worrying about them.

We are talking not so much about the investments themselves but the underlying structure and ownership.

KiwiSaver is not guaranteed by the Government. The taxpayer would not be happy taking on such a big liability. The safety of your money is secured in other ways.

KiwiSaver was set up by the Government under the KiwiSaver Act 2006. KiwiSaver schemes are well regulated and KiwiSaver providers can expect regular checks and audits by the Financial Markets Authority.

At the same time, KiwiSaver providers are in business to make money. They receive a management fee for looking after your savings and that helps the profitability of their company. Even providers who are 'not for profit' still receive payment for their services.

Theoretically any of them could get into strife and go under. However, while they own the right to manage the scheme your KiwiSaver assets are not owned in any way by their business.

KiwiSaver schemes are set up as trusts, and your money is pooled with other investors to buy assets like the Fletcher Building shares and bonds you mention. The assets are valued daily to arrive at a unit price and depending on how many units you hold, multiplied by the daily price, will give you the value of your KiwiSaver account. Your regular contributions will buy more units at the current price.

All these assets are entirely separate from the provider. The trustee of the trust (such as the Public Trust or Guardian Trust) has a role as supervisor and custodian to ensure that the provider complies with all its legal obligations. You can find the name of your trust and the trustee in your scheme's product disclosure statement.

This means that if a KiwiSaver provider's business were to get into difficulty, all the investments in the scheme would be 'ring-fenced' and protected. I do not believe this has happened in New Zealand to date, but some providers have on-sold their KiwiSaver businesses — for example Tower (now part of Fisher) and AXA (now owned by AMP).

The value of your KiwiSaver investment will go up and down depending on the value of the underlying investments and what is happening to markets around the world. Members can choose funds which are lower risk (fewer shares) or higher risk (more shares) depending on their timeframe and personal appetite for risk. There are even cash funds for those who just want to maintain the dollar value with no fluctuations at all.

Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 06 870 3838 or go to peak.net.nz. The information contained in this article is of a general nature and is not personalised. Send your KiwiSaver questions to shelley.hanna@peak.net.nz