Is KiwiSaver Safe?
Our guide explains everything you need to know about the regulation of New Zealand's largest retirement scheme
Updated 3 August 2023
Summary
Our guide covers:
Summary
- All KiwiSaver schemes are regulated by the Financial Markets Authority and supervised by a trustee. In addition, KiwiSaver is designed to be fraud-proof.
- KiwiSaver can't be stolen from you by your employer or a third party. You can't transfer it into a 'fake' or fraudulent fund either.
- However, you can lose some or all of your KiwiSaver in a relationship separation or divorce. What you lose will depend on your settlement and when you contributed to the balance.
- Depending on where you invest, some funds are more volatile than others. This means that some funds can go down - we have seen one drop more than 50% in 2021 and 2022, and no fund is safe from crashing.
Our guide covers:
KiwiSaver is Safe From:
1. Securities Fraud and Bad KiwiSaver Managers
All KiwiSaver schemes are regulated by the Financial Markets Authority and supervised by a trustee. The trustee must, by law, make sure the KiwiSaver scheme is fulfilling its obligations to its investors. If it isn't, it has the power to act. In 15+ years of KiwiSaver, there has never been an issue with a wayward KiwiSaver scheme.
The money everyone puts into KiwiSaver is held by an independent custodian. This means a KiwiSaver scheme's staff member can't steal from investors.
The amount of regulation that goes on behind each KiwiSaver fund is significant. There are also annual audits that verify the investments.
New Zealand had a famous case about a Ponzi scheme called Ross Asset Management. The investors lost most of their money because David Ross, who ran the funds, didn't invest the money but gave it away to other investors or spent it. KiwiSaver schemes cannot turn into Ponzi schemes because there is too much regulation to check the assets. Ross Asset Management wasn't a KiwiSaver scheme and would never be able to operate one, so the risk of a KiwiSaver fund running as a Ponzi is as close to zero as you can get.
The money everyone puts into KiwiSaver is held by an independent custodian. This means a KiwiSaver scheme's staff member can't steal from investors.
The amount of regulation that goes on behind each KiwiSaver fund is significant. There are also annual audits that verify the investments.
New Zealand had a famous case about a Ponzi scheme called Ross Asset Management. The investors lost most of their money because David Ross, who ran the funds, didn't invest the money but gave it away to other investors or spent it. KiwiSaver schemes cannot turn into Ponzi schemes because there is too much regulation to check the assets. Ross Asset Management wasn't a KiwiSaver scheme and would never be able to operate one, so the risk of a KiwiSaver fund running as a Ponzi is as close to zero as you can get.
2. Theft and scams by third parties
As discussed above, KiwiSaver is tightly regulated. There are only 30 schemes outlined by Inland Revenue here, so shady operators can't set up shop and offer to 'transfer' your balance without it going into an approved scheme. It also can't be "raided" either, nor can it be "lost" or "corrupted". KiwiSaver is, arguably, as real as it gets when it comes to trusted investments.
3. Employer mismanagement
As long as an employer is making payroll and you're getting paid, your employer contributions are finding their way to your KiwiSaver fund. Your employer has no control over your KiwiSaver fund - this is your money first and foremost. If your employer goes bankrupt or you get made redundant, all of your KiwiSaver money stays with you.
KiwiSaver is Not Safe From:
1. Market movements
Investing is always risky - KiwiSaver funds are rated 1 to 7 for risk (with 7 being the riskiest) by the FMA. In the short term, investments can drop in value just as much as they can rise. KiwiSaver is a long-term investment designed to help you keep a comfortable lifestyle in retirement by taking in regular contributions from your wages and salary.
Over the space of 10-40 years, it's near-certain that your investment will, at times, drop in value. However, KiwiSaver funds are designed to grow - it's near-impossible to lose all your money, given investment managers spread the risk by buying shares in different companies and industries.
Over the space of 10-40 years, it's near-certain that your investment will, at times, drop in value. However, KiwiSaver funds are designed to grow - it's near-impossible to lose all your money, given investment managers spread the risk by buying shares in different companies and industries.
2. Divorce settlements and separations
The KiwiSaver contributions you made during a marriage or relationship is considered relationship property. Therefore, anything you contributed before and after the relationship is off-limits and usually assessed as separate property.
Whatever your KiwiSaver is valued at will be pooled together with your relationship assets (i.e. home, holiday home, car and other investments) and divided. If you're ordered to distribute your KiwiSaver as part of a settlement, there are two ways of doing it:
Divorce is almost always expensive; a prenup can protect your KiwiSaver balance by contracting out of the law. Our prenup guide explains what you need to know, including if you're in a relationship. We also have a comprehensive guide to KiwiSaver and Divorce.
Whatever your KiwiSaver is valued at will be pooled together with your relationship assets (i.e. home, holiday home, car and other investments) and divided. If you're ordered to distribute your KiwiSaver as part of a settlement, there are two ways of doing it:
- One partner can keep their KiwiSaver balance and agree to the other partner keeping a cash equivalent such as a car and/or money in a bank account.
- A court order directs the KiwiSaver provider to release some of the money to provide a settlement for the other partner.
Divorce is almost always expensive; a prenup can protect your KiwiSaver balance by contracting out of the law. Our prenup guide explains what you need to know, including if you're in a relationship. We also have a comprehensive guide to KiwiSaver and Divorce.
3. Panic and locked-in losses
When COVID-19 spread widely in March 2020, sharemarkets fell around 30% in the space of a week. It was unprecedented, and unsurprisingly, some people panicked after seeing their growth funds collapse and decided to switch into cash funds. The problem was that sharemarkets then rebounded and started aggressively rising, but anyone who had switched into cash or conservative funds didn't enjoy the rebound.
The Global Financial Crisis in 2008 and COVID-19 in 2020 proved that KiwiSaver funds could drop significantly in value. However, anyone who took a long-term view and kept their money in the same fund has most likely outperformed anyone who saw losses and switched.
The Global Financial Crisis in 2008 and COVID-19 in 2020 proved that KiwiSaver funds could drop significantly in value. However, anyone who took a long-term view and kept their money in the same fund has most likely outperformed anyone who saw losses and switched.
4. Apathy and non-contribution
This is a huge problem with KiwiSaver, with around 30% of members not contributing at all. Quite simply, if you stop contributing you will always have your KiwiSaver available to you when you turn 65, but you will miss out on the benefits of employer contributions and government top-ups year after year.
Frequently Asked Questions
Have any KiwiSaver schemes closed down or gone bankrupt?
Since KiwiSaver launched in 2007, there have been no scheme failures. However, some schemes have merged with others (Huljich KiwiSaver was sold to Fisher Funds is one example). So while new KiwiSaver schemes continue to launch, we believe the 'worst' thing that could happen is that a failed scheme is moved to another provider. Importantly, you can switch KiwiSaver funds at any time, so there is minimal risk.
If my KiwiSaver scheme shuts down, what happens?
It is extremely unlikely the company running a KiwiSaver scheme will get into financial difficulties. However, if disaster strikes, there's a pre-determined process to ensure your money is safe:
- The scheme's Supervisor will appoint a temporary manager. This manager will then run the scheme according to its investment objectives. For example, if you're in a growth fund, your money will be invested accordingly.
- The temporary manager operates the scheme as any other scheme operates - a management fee is charged to pay for the day to day expenses. The money in your fund is ring-fenced and protected - there isn't a 'liquidation' of the fund to pay out creditors etc. What's in the fund is yours, and no one has a claim over it.
- Because any failure of a KiwiSaver scheme would be high profile, we believe there would be a lot of regulatory and media focus. Because of this, all parties involved would act swiftly to ensure there was no disruption.
Will my KiwiSaver lose money ?
In the short term, it's possible to "lose" money on KiwiSaver, which you'll notice if you switch funds. For example, you may switch into a fund with a $25,000 balance and switch out with a $24,000 balance. This will usually be caused by short-term market movements and another reason as to why a long-term commitment is best for growing a KiwiSaver nest egg.
Where can I find out more about the risks with my KiwiSaver scheme?
The best starting point is the Product Disclosure Statement, which outlines the scheme's background, its funds, each fund's risks, fees and objectives. This will give you a general understanding. If you have specific questions after that, we suggest contacting the KiwiSaver scheme's client team.
