QUESTION: Is KiwiSaver guaranteed by the government?
ANSWER: No, KiwiSaver is not guaranteed by the government. In fact, every KiwiSaver investment statement is required to have a statement to that effect, according to the KiwiSaver Act 2006.
You are not alone in thinking that KiwiSaver schemes are government guaranteed – a survey in March last year found that 48% thought that it was. Before 2008 we didn’t talk about government guarantees but the Global Financial Crisis changed all that. Three years on there are very few institutions still offering investments covered by a government guarantee (the ‘Retail Deposit Guarantee Scheme’). Bank deposits have not been covered since early 2010.
If you do not have confidence in the ability of your KiwiSaver fund manager to invest your money prudently, then you should learn more about your scheme and how your money is invested. Most schemes have a low risk option which may include investments in cash and bank deposits as well as NZ government stock – this is a loan to the government which it is obliged to repay. Choosing the low risk option may help risk-averse investors sleep better at night but may limit the return they receive over the longer term.
Remember that the government is putting tax payer dollars into every KiwiSaver scheme as the ‘kickstart’ and the tax credit (for those over 18), so it also needs to be confident that the schemes are run well. KiwiSaver schemes are operated under clear guidelines set out in the Act. The manager of each scheme has to make prudent decisions about investing the money received. They are supervised by an independent trustee and audited. They are required to send every member an annual statement.
As with all investment decisions, KiwiSaver investors need to be comfortable with the level of risk that they take on to achieve a desired return. Seeking advice on which scheme best suits your needs may be more important than a guarantee from the government.
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