KiwiSaver: In wake of Aussie failure, what would happen here if a KiwiSaver provider failed?
'I think we've got a more effective regulatory regime. It's set up really well to protect KiwiSaver members and investors,' Callanan said.
There is always the risk that investments could go wrong, but KiwiSaver schemes do have some protections in place. Photo / Getty Images
He said the supervisor was 'effectively a trustee'.
'We're in place to ensure that KiwiSaver providers are doing the right thing for investors. If there was an issue with a KiwiSaver provider then the supervisor would be able to step in and take control back and come up with a solution.'
Callanan said that could involve appointing another manager if necessary.
'We have the power to step in and to take control back in the interests of those investors.'
He said that because there were a limited number of independent supervisors, they were closely regulated by the Financial Markets Authority.
'In Australia, there are hundreds of responsible entities who play that role.'
Callanan said if a fund manager was failing, it would not be able to access investor funds.
'That's another area that in those scenarios that I've seen in Australia hasn't worked. You've got fund managers just dipping into investor monies, you know, to go and buy a Lamborghini or whatever they feel like on a whim.
'That just couldn't happen here because we've got independent custodians and again, Public Trust is an independent custodian for a number of KiwiSaver providers, and that can give investors confidence.'
He said there was also a strong conflict-of-interest regime in place.
'Even for fund managers who might undertake what is called a related-party transaction ... the Financial Markets Conduct Act stipulates the process they have to go through to work with their supervisor to get that transaction across the line.'
But that does not mean you cannot lose money in KiwiSaver.
Callanan said there was always the risk that investments could go wrong and financial markets might not perform as expected.
'But if you're with a KiwiSaver provider in New Zealand, you can have confidence that there's a mechanism in place in the supervisors that if something was to go wrong with that manager, the supervisor would step in and stop you falling down the metaphorical cliff.
'There's always the possibility that someone makes a silly financial decision or you could pick an investment that's really bad. My advice would be to avoid a situation where you have all your eggs in one basket.'
He said that could only happen with the KiwiSaver schemes that allow people to choose their own investments.
'Most KiwiSaver providers are offering these diversified products and you can be really confident you've going to get a good outcome because you've spread your risk in an appropriate way.'
Financial Markets Authority (FMA) director of markets, investors and reporting John Horner said the law prescribed the segregation of duties in relation to managed investment schemes.
'Generally, while the manager of the scheme is responsible for investment decisions, the custodian is responsible for holding and safeguarding the scheme property – segregation of legal ownership – and for keeping records of the scheme property – segregation of functions. Supervisors licensed by the FMA are responsible for custody. Depending on the scheme's governing documents, a supervisor may appoint another appropriate independent person as custodian.
'MIS [managed investment scheme] managers and supervisors are obliged to act with care, diligence and skill. MIS managers are expected to maintain strong capital positions, professional indemnity insurance, parent company guarantees or other, similar arrangements. Managers are also required to notify the supervisor if they are, or are likely to become, insolvent. The supervisor is responsible for monitoring the manager's performance of its functions and obligations, as well as its financial position.
'In the event that the fund manager becomes insolvent or is otherwise unable to continue operations, the supervisor has the power to appoint a temporary manager to ensure the continued management and operation of the fund until a permanent replacement is appointed.'
– RNZ
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Newsroom
13 hours ago
- Newsroom
Govt KiwiSaver cut ‘final nail in the coffin' for self-employed
Self-employed New Zealanders are re-thinking their retirement savings schemes after the Government slashed its KiwiSaver co-contribution in the Budget. Data compiled from accounting fintech Hnry's latest sole trader pulse check highlights negativity following the change, with 52 percent of the 502 self-employed workers polled, actively opposing the cut. Forty-three percent say it will alter their saving behaviour and 24 percent plan to reduce their contribution as a result of the change.
NZ Herald
2 days ago
- NZ Herald
KiwiSaver hardship reveals hidden cost of this economic downturn
We had news last week that KiwiSaver members withdrew more than $470 million for hardship reasons in the past 12 months amid continuing economic stress. Inland Revenue figures showed $470.7m was taken out of KiwiSaver in the June financial year, up 56.6% from $300.5m over the prior period. Looking back through the figures, there has certainly been a big spike in withdrawals in the past two years, but they have been on the rise for several years. Since Covid, both the number of people withdrawing funds and the amount withdrawn have risen steadily. As a barometer of the general economic situation, that isn't great. But the bigger problem with these hardship withdrawals is that the ultimate cost is (quite literally) compounded through the years. More than $1.3 billion of KiwiSaver funds has been withdrawn for hardship reasons in the past five years. If we do some back-of-the-envelope calculations and assume this money could have earned around 7% returns for the next 20 years, then we get a figure of more than $5b that will be missing from the nation's pool of retirement funds by 2045. Given the current trend of withdrawals, I suspect this is a conservative estimate. I understand why we allow withdrawals for hardship. It doesn't make sense for people to lose their homes or to go hungry when they have thousands of dollars sitting in a KiwiSaver account, so I'm not advocating that we stop allowing the withdrawals. However, there is a hidden cost and the situation highlights just how crucial it is for the Government to put more focus on retirement savings. There is a lot more money coming out of the KiwiSaver scheme to fund people into their first homes. Since Covid hit, an average of about $1.2b a year has been withdrawn from KiwiSaver for first home purchases. A home is an asset at least, and home ownership is an important step on the path to financial independence. I suspect we just have to accept the first home buyer withdrawals as a feature of the KiwiSaver scheme. If young people are in the scheme from the start of their working life and have $10,000 or $20,000 to put towards a house deposit, they are probably ahead of where many in my generation were at the same age. But the reality is that as a nation, we're well behind on where we need to be with our retirement savings. According to Stats NZ projections, the percentage of the population aged 65+ will increase from roughly 16-17% in the early 2020s to about 19-20% by 2030. By 2050, around 24-26% of New Zealanders are expected to be 65+. The old-age dependency ratio (ratio of elderly to working-age population) is expected to nearly double between 2020 and 2050. Our annual superannuation bill already comes in at more than $20b, and Treasury has projected that to rise to about $45b by 2037. According to Budget 2025 data, New Zealand Superannuation costs $4352 per person per year, making it the third-largest area of government spending after welfare ($6181 per person) and health ($5804 per person). From the Treasury's long-term fiscal projections, spending on NZ Super is projected to grow from 4.3% of GDP in 2010 to 7.9% in 2060, an increase of 3.6 percentage points. It is also rising as a percentage of the Government's total tax revenue – from about 17% now, it is projected to rise above 21% by 2037. So we know we have a problem. It seems almost certain that the age of superannuation will have to be raised to 67 in the coming years – despite the current opposition of NZ First and Labour. Future governments will almost certainly come under more pressure to means-test. KiwiSaver, which currently has total funds of $122b, is one of our great hopes. But the total figure is flattering. There are more than three million KiwiSaver members so the average fund size is just $37,000. Hopefully, that will be skewed by a lot of young people who will see their savings grow dramatically in the next decades. That brings us back to the downside of withdrawing funds early for hardship, though. We need to be saving more, not less. Moves by the Government to lift the default contribution rate for both employees and employers to 4% from April 2028 were a step in the right direction. However, they pale in comparison to Australia's compulsory scheme, which requires 12% employer contributions. The scheme has the equivalent of $4.5 trillion invested, making Australia the fifth-largest holder of pension fund assets in the world, not per capita but in nominal terms. Australia, for the record, also allows people to withdraw funds for hardship, but one suspects fewer people there need to. If we want to make the most of the KiwiSaver scheme we have, we need to look more closely at who is withdrawing their money and why. Meanwhile, young Kiwis are voting with their feet and joining the Australian Superannuation scheme ... by virtue of moving to work there. Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
NZ Herald
2 days ago
- NZ Herald
Trade on agenda as Trump lands in Scotland for diplomacy and golf
Trump is also due to meet UK Prime Minister Keir Starmer during the trip. US President Donald Trump boards Air Force One bound for Scotland. Photo / Getty Images He said the meeting would be 'more of a celebration than a workout', appearing to row back on previous comments that a bilateral trade deal struck in May needed 'fine tuning'. 'The deal is concluded,' he told reporters on the tarmac at Prestwick. But the unpredictable American leader appeared unwilling to cede to a UK request for reduced steel and aluminium tariffs. Trump has exempted British exports from blanket 50% tariffs on both metals, but the fate of that carve-out remains unclear. 'If I do it for one, I have to do it for all,' Trump said in Washington before embarking on his flight, when asked if he had any 'wiggle room' for the UK on the issue. The international outcry over the conflict in Gaza may also be on the agenda, as Starmer faces growing pressure to follow French President Emmanuel Macron and announce that Britain will also recognise a Palestinian state. Protests Trump is due to return to the UK in September for a state visit – his second – at the invitation of King Charles III, which promises to be lavish. During a 2023 visit, Trump said he felt at home in Scotland, where his mother Mary Anne MacLeod grew up on the remote Isle of Lewis before emigrating to the United States at age 18. 'He's original, he does things the way he wants to. I think a lot of our politicians could take a good leaf out of his book,' 45-year-old Trump fan Lisa Hart told AFP as she waited to see his plane touch down. But the affection between Trump and Scotland is not always mutual. In this photo from February 2000, Donald Trump (left) – a real estate developer at the time – and his future wife, former model Melania Knauss, financier Jeffrey Epstein (now deceased) and Ghislaine Maxwell pose at the Mar-a-Lago club in Palm Beach, Florida. Epstein and Maxwell were in later years convicted of sex trafficking offences. Photo / Getty Images Residents, environmentalists and elected officials have voiced discontent over the Trump family's construction of a new golf course, which he is expected to open before he departs the UK on Tuesday. Police Scotland, which is bracing for mass protests in Edinburgh and Aberdeen as well as close to Trump's golf courses, have said there will be a 'significant operation across the country over many days'. Scottish First Minister John Swinney, who will also meet Trump during the visit, said the nation 'shares a strong friendship with the United States that goes back centuries'. Trump has also stepped into the sensitive debate in the UK about green energy and reaching net zero, with Aberdeen being the heart of Scotland's oil industry. In May, he wrote on his Truth Social platform that the UK should 'stop with the costly and unsightly windmills' as he urged incentivising drilling for oil in the North Sea. US discontent The trip to Scotland puts physical distance between Trump and the latest twists in the case of convicted sex offender Jeffrey Epstein, the wealthy financier accused of sex trafficking who died in prison in 2019 before facing trial. In his heyday, Epstein was friends with Trump and others in the New York jet-set, but the President is now facing backlash from his own Maga supporters who demand access to the Epstein case files. Many support a conspiracy theory under which 'deep state' elites protected rich and famous people who took part in an Epstein sex ring. But Trump is urging his supporters to move on from the case. The Wall Street Journal, which published an article detailing longstanding links between Trump and the sex offender, is being punished by the White House. Its reporting team plan to travel to Scotland on their own and join the White House press pool but it has now been denied a seat on Air Force One for the flight home. While Trump's family has undertaken many development projects worldwide, the President no longer legally controls the family holdings. However, opponents and watchdog groups have accused him of having many conflicts of interest and using his position as US President to promote private family investments, especially abroad. – Agence France-Presse
