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
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He said members still had choice and there were many lower-risk and savings options available. Booster chief executive Di Papadopoulos agreed New Zealanders were becoming more sophisticated in assessing their time horizons and figuring out if they could handle more risk to target higher returns. "It appears people are moving to higher risk funds that align with them not needing their KiwiSaver money for retirement anytime soon," she said. "At Booster, we have seen the benefit of these decisions. Moving from a balanced fund to a growth fund increases projected balances at retirement significantly. "A key factor is how soon or long in the future your might need to access your KiwiSaver, such as if you want to use it to buy your first home, or for your retirement. "If you're unsure about whether you are in the right fund it's a good idea to check in with a financial adviser." How much difference might your outlook be? Based on Sorted's retirement calculator… A 20-year-old joining KiwiSaver now with no investment, earning $60,000 and contributing 4 percent of their salary plus an employer's contribution of 4 percent could expect to have at 65: $381,354 in a balanced fund $477,814 in a growth fund $606,456 in an aggressive fund This accounts for inflation.
