KiwiSaver: Egg trapped in one nest

KiwiSaver rules only allow you to be with one provider at a time. If you are not happy with your provider, you can switch at any time. Photo / File

Q: I have been in KiwiSaver since its introduction and my balance has built up to nearly $100,000. It concerns me that all my KiwiSaver funds are with one provider. The Government allows a person to have their savings split across differing funds (some in a low-growth fund and some in a high-growth fund) but it does not allow a person to hold KiwiSaver accounts with more than one provider. Without this, we are left with the risk a provider may fail. Surely it would be easy to allow all new contributions to be channelled to a second provider, and thus your first provider just manages the funds you have until you decide to cease contributing. This would at least help mitigate the risk of provider failure.

A: You are right - KiwiSaver rules only allow you to be with one provider at a time. If you are not happy with your provider, you can switch at any time, but your entire savings will follow you to your new provider.

Given finance company collapses wiped out the retirement savings of a lot of New Zealanders, what safeguards have been put in place to protect us?

Andrew Park from the Financial Markets Authority (FMA), the independent Government organisation that keeps a watch over KiwiSaver providers, says to ensure funds are safeguarded, each provider must have a supervisor - which is a separate company - whose job is to make sure members' money is invested where and how it's meant to be.

"The supervisor also holds the members' assets on trust.

"This provides a protection for investors' funds since these assets are held separately from the provider's balance sheet.

"If a provider were to fall over, the assets would be transferred by the supervisor to another nominated KiwiSaver scheme and any members who aren't happy with this new provider are able to move to a different provider of their choice," says Park.

Park raises another couple of points to keep in mind.

First, there are no Government guarantees on KiwiSaver balances.

Second, the FMA monitors KiwiSaver providers to ensure they are following the rules and acting in the best interests of KiwiSaver members, but so long as the providers invest in what they said they would, there are no protections if the investments bought with your KiwiSaver contributions take a hit.

Although members' assets are held separately in trust and providers are supposed to follow the rules and meet their obligations, when markets devalue or returns become negative, KiwiSaver funds will also experience negative returns and losses for a period.