Q The Covid-19 pandemic has got me worried about the safety of my KiwiSaver. Am I better off investing in precious metals such as gold and silver? I've been reading the Gold and Silver Survival Guide. They say KiwiSaver could be at risk from governments and banks calling nationwide bail-ins. I'd like to know more about my investment and if it can get a "haircut", if our economy goes south. I don't have much, but I want what I have protected.
Many people are suffering from increased anxiety during the Covid-19 pandemic. While this is normal, be cautious about where it leads and what actions it may prompt you to take.
There is a free online learning tool called Just a Thought available to all New Zealanders. It has three courses; one for depression, another for generalised anxiety and a third entitled Staying on Track, which is aimed at supporting your well-being.
The courses come with a range of free resources. One is the "Worry Chart". It tells you to challenge the worry, coach yourself through it or change your focus.
You are worried about your KiwiSaver. At uncertain times, investors buy more gold and silver. Websites such as the one you have been on will feed your fears to increase your anxiety, in the hope that you will buy their products or services.
Let's challenge your worry. What are the facts? KiwiSaver is not guaranteed by the Government, but it is well regulated. The Government does not have the authority to dip into your KiwiSaver. KiwiSaver providers are audited regularly by the Financial Markets Authority to ensure that investments are appropriate. Investors can choose low risk funds (fewer shares) or higher risk funds (more shares) according to their timeframe and appetite for risk.
Some of your KiwiSaver funds may be in bank deposits or bonds issued by banks. These would be regarded as low risk. However, the Government does not guarantee bank deposits. In the unlikely event of a bank failure, the Open Bank Resolution (OBR) policy gives depositors some protection. OBR is a long-standing Reserve Bank policy aimed at allowing a distressed bank to be kept open for business, while placing the cost of a bank failure primarily on the bank's shareholders and creditors, rather than the taxpayer. If losses cannot be covered by shareholders and the bank's available capital, then in addition a proportion of depositors' funds (the "haircut" you refer to) are set aside and frozen for the purpose.
Depositors still have a legal claim to their frozen funds as unsecured creditors, and if any money can be returned to depositors after the bank's financial situation has been worked through, it will be. Our major banks have strong Standard & Poor's ratings and the chance of a bank failure is low.
Returning to the Worry Chart, once you have addressed the facts and looked at supporting evidence, the next question is, "If this were to come true, how would you cope?"
Our financial system would need to be under a lot of pressure to reach this stage. If you were to lose a percentage of your savings in a bank failure, you may have to adjust your standard of living, work longer hours or get social welfare assistance. The pandemic has already affected many in this way.
In the latest Budget, Minister Grant Robertson stated the Government is "providing $32 million to increase support for foodbanks, food rescue and other community food services". We are fortunate to live in a country with a strong economy and a stable political system.
I recommend you take a closer look at where your KiwiSaver money is invested — ask your provider. That may give you reassurance that even in a worst-case scenario, your KiwiSaver will survive.
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 firstname.lastname@example.org