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KiwiSaver Q&A: If the New Zealand government joins the PIIGS, what are the repercussions for my KiwiSaver?

KiwiSaver
KiwiSaver Q&A: If the New Zealand government joins the PIIGS, what are the repercussions for my KiwiSaver?

Q) Given that some Governments overseas are essentially bankrupt, is it not possible that the New Zealand Government could also go bankrupt and all of our contributions to KiwiSaver might be lost so that we never see that money again?

A) It's a big question and a big call to forecast the New Zealand Government going broke. You might hear that from a few bears frequenting our website but not many share those concerns, at least at the moment. KiwiSaver is an investment like any other and as such is open to risk. There is no Government Guarantee that will protect your money in the event of an economic meltdown severe enough to bankrupt the Government. It is ultimately up to your KiwiSaver provider to manage your money, and for you to keep a close eye on how it is tracking to minimise the risk of losing your capital. (Find your Fund here and see how it is going).

Craig Simpson, our senior analyst here at interest.co.nz, says the risks ring true for cash and equities.

"KiwiSaver providers have the ability to make decisions that could lead to losing money and capital and we saw that through the Global Financial Crisis. It doesn't matter if you're in cash or in equities, there's still risk.''

"As a KiwiSaver provider they need to act prudently with peoples money, they're obliged to. In the absence of no Government guarantee that means they're accountable.''

To reduce the risk of something going horribly wrong for investors, each KiwiSaver provider has a trustee who is charged with overseeing their operations.

But as Simpson points out, the trustee relationship does not necessarily mean something can't go wrong. Finance company investors learnt that the hard way, as many of the companies that fell over also had trustees who simply didn't do their job.

"Trustees haven't fully acted as you would expect them to,'' says Simpson.

"I wouldn't go so far as to say they've been negligent, but it certainly hasn't been as tight as far as regulation and oversight as what you would expect from a trustee who is responsible for ensuring that mum and dad's money is safe.''

A more realistic threat with respect to your concerns about the Government's financial well-being, is the withdrawal of the member tax credit at some point.

"Government has already cut it once and that is an indication there could be further cuts if it came to the point where we couldn't afford to have the tax credit. They're still collecting the taxes on one hand and giving you a bit back on the other.''

Despite all the doom and gloom, relative to other nations world-wide, New Zealand and Australia are in reasonably good form economically, he adds.

"I don't think we'd be at risk (of the same fate as the Portugal, Italy, Ireland and Spain. New Zealand and Australia seem a bit more insular, even the United States is starting to see some economic recovery. Life goes on.''

Should those not reassured about New Zealand's relative economic position bail from KiwiSaver or abstain altogether?

Ultimately, your personal circumstances and views about the world economy will guide your actions however Simpson suggests paranoia is not a great reason in itself to stay out of KiwiSaver. That's particularly the case, if you don't have any other retirement savings plan.

"I wouldn't go so far as to say you shouldn't invest in KiwiSaver,'' said Simpson.

"If you take a long-term view and ask what was it designed for, it is designed to contribute toward retirement, especially for younger generations that are less likely to get anything from government. We're going to be reliant on our KiwiSaver.

Still not convinced?

Simpson recommends those with strong concerns see an authorised financial advisor to have the risks explained in greater detail.

And if you're already invested in KiwiSaver? It might be better that you adjust your investment risks accordingly, into a more conservatively structured fund which a higher exposure of cash or fixed interest.

Even then, the "new normal" in investing means you could find risk, where you didn't get it before.

Like life, there are no guarantees in investing.

 

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

16 Comments

Paranoia, LOL.....oh Ok so anyone who isnt a lemming is a paranoid....

lets look at where the kiwisaver money is put,

1)  Shares....as ppl have said there is no value left in NZ shares so the SOE float will be a good thing.  Share price and earnings are based on business as usual....hello Peak oil and 2nd Great Depression, where will share prices go? off a cliff, see lemmings.

2) i) Commercial property, retail is in tough times but they are going to get tougher, so see 1).

    ii) Most other businesses are also going to see tough times....so see 1).

3) Govn Bonds......not sure short term, fairly safe in a 5 year? time frame but the returns are low.....

4) At some point we are going to look like Greece does now unless taxes go up so we dont have to borrow any more, or we severly cut out public spending....or both.....

5) Growth....just about all of the above assumes or has to have growth.....no more energy no more growth....so robbing Peter to pay Paul will occur.....peter is going to be retail etc, see 2)

So short answer is pay down debt first....money going into kiwisaver is probably all going to be lost.

regards

 

 

 

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Personally, I'm on a 'holiday' from Kiwisaver for a couple of years, after receiving all the benefits from the 1st 3 years or so. 

 

I see debt repayment as a better bet currently.

Not worried on the 'safety' of Ks accounts - the 2% is hardly a sacrifice in the furst place. 

 Also chose a Cash only account - which may have it's own risk.  Think you should have other investments, assets , and not just depend on KS.

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Probably the best thing to do.....I would think the Govn is going to can contributions sometime in the next 2~3 years.  So ceasing to pay in at that time is an option, unless they stop you taking a holiday which is also a risk. Meanwhile I have no KS as Im paying down my mortgage as I see that as a 6% saving (how many KS's apart from the Govn handout pay 6% after tax? bet none), plus of course a risk.....

regards

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....... huh , and I was freaking out that it was only me who was thinking 'like that , about KS ......

 

But how can I be sure that you're paranoid too , I think you're just faking it ....... aren't you ?

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"I don't think we'd be at risk (of the same fate as the Portugal, Italy, Ireland and Spain. New Zealand and Australia seem a bit more insular, even the United States is starting to see some economic recovery. Life goes on.''

No worries then...we don't have a debt problem...we are not trying to sell into a debt diseased world market ...if China turns septic it won't worry us....we can always borrow more and then borrow more...Best of all the cost of all the credit will never rise....safe as houses....yup we are more insular....and the US "recovery" seems to have been a media event...what "recovery"?   ....looks more like an inverted Tornado sucking the life out of the Americans...even the faked unemployment numbers can no longer be manipulated to be positive.

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Wolly,

Forget the US government and all the smoke and mirrors that come with it for a second - would you not concur that corporate America is showing signs of recovery and is in reasonable health compared to what we saw at the lowest point of 2007/2008?. 

From what I am seeing and reading US companies are reporting profits, returning capital to investors and paying a growing dividend stream.  If this trend continues we should see it flow through in US govt economic news and hence my view on life is more rosy than some.

Craig.

 

 

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No Craig I would not agree. I think you are frightened to be honest with yourself about the true nature of the US economy. As for corporate reporting..are you serious...you actually believe them! If so then why are you not investing in US companies!

What you can expect all the way up to the elections there in November...massive lying...humbug....distortions....BS....The QE farce has only served to pork the equities and commodities markets...the printing has NOT rid the country of the debts and certainly not of the corruption and criminal behaviour in the financial and political sector.

The Majority of Americans have been made to look foolish as the Fed and the govt liars proceeded to hide the truth and bail out the scum.

What you prefer to see as rosy....I see as a prolonged period of poor growth in all western economies as the debt filth contaminate them all...that includes Germany and Sweden. Post the US election joke...the shite will hit the fans.

 

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I guess we will have to agree to disagree on this one. 

b.t.w I do invest into US equities via a NZ based boutique fund manager.

 

 

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ho hum.....by all means....my main pension is US based, it lost 22% in 2008 in one year after 30+ years of putting money in......it has somewhat recovered but its locked  up so I cant switch to ultra-conservative safe ones..........disadvantage of not doing it yourself....

regards

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No.....US corps have gutted themselves....70% of the US GDP was consumerism.....when you cut staff they cant spend...so sure short term there isnt hugely bad news....meanwhile the EU is still a basket case....many US states seem insolvent, the US banks are but are being allowed to hide it....for me its a powder keg with a lit fuse.....the only Q is how long is the fuse...

regards

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Just out of interest, if you have a kiwisaver account and are declared bankrupt, do you get to keep it? Or is it available to creditors?

Also, is the balance of a kiwisaver account matrimonial property?

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Good Qs.......

I would be surprised if creditors cant get it,

"Being declared bankrupt

If you're declared bankrupt, your KiwiSaver contributions may become subject to bankruptcy proceedings. The outcome of these proceedings will determine how your contributions will be treated.

Further information can be found on the Ministry of Economic Development's insolvency site.

and 1/2 isnt your wife's.........

regards

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I've looked at MED site and also Kiwisaver, I can't be sure about this, however the rules around "early withdrawals" from KS would seem to allow money (for creditors) to flow out only  under the "significant hardship" criteria. Given that the money (personal and employer contributions) would be going to the creditors and not addressing the member's hardship in any other sense, logically it would seem that the early withdrawal rules cannot be used in a bankruptcy situation, unless these rules are overridden by, say, the Insolvency Act.

I don't intend to personally find out the hard way,but if any blogger can shed more light on this please do.

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No to the first, yes to the second.

Here's a video I did on the subject. Some dispute as providers and Insolvency and Trustee Service don't quite see eye to eye on the matter.

Cheers, Amanda

 

http://www.interest.co.nz/kiwisaver/55358/kiwisaver-qa-it-true-if-i-inv…

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I am a big advocate for Kiwisaver.  But the big flaw is that financial services industry.  The money invested is at the mercy of any overall market fiasco.  And inevitably some Kiwisaver provider or other is going to fall under the control of a Petrovic lookalike.  But which one ?

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What's that man looking at ?

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