Kiwisaver: Users pay for pension fund peace-of-mind

Your KiwiSaver money is ringfenced, but not guaranteed.

Q. Your reply concerning safeguards to KiwiSaver raises a few more queries for me. You quoted Andrew Park from the Financial Markets Authority who who says a "separate company" keeps a watch over KiwiSaver providers. Really? That's like: who guards the guards? Question - who pays? Park more precisely hits the nail on the head when he says there are no guarantees, be they government or any other.

A. The question asked what, if any, protections are put in place for KiwiSavers in the event of a provider going bust.

As you mention, looking out for your interests in the first instance is the trust company - now branded the "supervisor".

These companies are licensed by the Financial Markets Authority (FMA), which runs a ruler over all senior staff and directors to ensure they're up to the task and have put in place the appropriate checks and balances.

The FMA also has an ongoing role in keeping an eye on supervisors.

Supervisors are appointed to look after investors' interests for certain types of securities, including KiwiSaver, says Vanja Thomas, senior relationship manager at supervisor company Guardian Trust.

She says as a supervisor, Guardian Trust "proactively monitors" the obligations of KiwiSaver providers to their members.

"Part of the supervisor's role is to ensure that funds are safeguarded by holding them on trust on behalf of the members and that members' money is invested as the offer documents indicated it would be.

"The supervisor's fees are generally paid directly from the scheme," says Thomas.

In short: you pay.

Exactly how much will be set out in the investment statement from your provider.

Thomas says there is a misunderstanding that KiwiSaver schemes are in some way guaranteed, but there are no government, or other, guarantees in relation to KiwiSaver balances.

"However, if a provider became insolvent and unable to perform its duties and responsibilities, since the provider doesn't own the assets - the individual KiwiSaver investor still beneficially owns the investments - a member will not be out of pocket. Members' funds are effectively ring-fenced.

"If a provider were to become insolvent or to close for any reason, the assets would be transferred by the supervisor to another nominated KiwiSaver scheme," says Thomas.

"It is important to remember that even when providers are doing the right thing and meeting their obligations, KiwiSaver balances will fall in value in line with market falls," she adds. "Although members' assets are held separately in trust and providers are monitored to ensure they are following the rules, KiwiSaver funds will reflect volatility in the markets in which they invest."

The question did ask if it was possible to spread KiwiSaver funds across several providers.

This isn't an option, although you are free to switch providers at any time.

Shelley Hanna, an authorised financial adviser, she has found several providers offering a choice.

Aon KiwiSaver allows investors to spread their funds across up to four managers, as does AMP, she says.

"There is a case for having more than one manager, particularly with a growth strategy, as managers will have different strategies and some will work better in certain conditions than others," says Hanna.

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 NZ Herald's panel of industry players, email Helen Twose.
Helen cannot answer all questions, correspond directly with readers, or give financial advice.