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.