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The Professional Trustee Team

Is your KiwiSaver safe?


Many New Zealanders still retain memories of Black Tuesday – the day the share market collapsed in 1987. The crash began in Hong Kong, spread to Europe, moved into the United States and then headed Australia and New Zealand's way. 

By the end of Tuesday 20 October 1987 the stock market had shed a vast amount of value and in its wake, some New Zealanders suffered major financial injuries. Roll forward to the period 2006 through to 2010 and you'll find 49 New Zealand finance companies, including the likes of South Canterbury Finance, Hanover Finance and Bridgecorp Holdings, collapsed or at least, ceased trading. The end result was Kiwis suffered financial losses in excess of $8B. During this time period, around April 2008, one of New Zealand's largest property companies, Blue Chip New Zealand Limited, was placed into liquidation, resulting in a loss to investors of an estimated $80M.

The issue

Given the above facts, it's no wonder the typical Kiwi has concern over where they place their hard earned dollars and planning for their retirement. The Government has been anxious, too, about the past wild-west landscape which permitted (and some may even say encouraged) the fleecing of New Zealanders. The corresponding long-term consequences are horrific – Kiwis losing their homes and businesses and entering into retirement with very little saved. To right the wrongs and provide for the future, various pieces of legislation have been introduced along with the KiwiSaver scheme. Personally I like the idea of having funds available for my old age so I'm happy about KiwiSaver being introduced as a retirement tool. Other Kiwis must echo my thinking, as since its inception in 2007 this method of voluntary long-term savings for retirement has gained in popularity and now an estimated 2.64m people are enrolled in the superannuation scheme. But are your funds truly safe in KiwiSaver? 


The danger 
Imagine this ... you and two friends borrow money to fund a business which unfortunately is not successful. You make an arrangement with your two friends and the bank to repay your share of the loan. You seek funds from your KiwiSaver provider but are refused. The business fails. The bank calls up the loan. You cannot access your KiwiSaver funds, being the only available source of money you have to repay your portion of the loan. The bank proceeds with court action right through to bankruptcy. At this point, the Official Assignee steps into your shoes and accesses your KiwiSaver account, using the funds to repay the bank creditor. 

The irony of the result is this: the bank loan is partially repaid (which you intended to do in any event) from your KiwiSaver funds and you are bankrupted. Bankruptcy could have been avoided if you'd been able to access your funds. Tall story? No. Reality for one poor person I know. This unhappy state of affairs should not occur in the future, however, thanks to a fairly recent case which determined a bankrupt's interest does not vest automatically in the Official Assignee on an individual being made bankrupt. This means that such funds are now not available to repay creditors during a bankruptcy. 

Does this mean all superannuation funds are safe? No. Depending upon the rules that govern the superannuation scheme and applicability of provisions of the Insolvency Act 2006, some superannuation funds may not be afforded the same protection as that which KiwiSaver now enjoys. Overall, whether a bankrupt's funds are safe or not, will depend upon what type of superannuation they have. Somehow that doesn't seem consistent and even fair to my mind.


Summary
So what action should you take now? Here's my two pennies worth:
1. Review your retirement plans. How much money do you need and are you on track with your financial retirement requirements?
2. For those already in a superannuation fund, understand what type of superannuation scheme it is. Are you in KiwiSaver where funds are generally protected against creditors or are you in a private superannuation fund where (given current law) funds may be available to satisfy your creditors?
3. Determine if your current fund is right for you. Often people have chosen an incorrect fund or their circumstances have changed and they haven't reviewed and updated their superannuation fund plan so that it remains appropriate for their needs.
4. Consider if you need to invest your hard earned dollars, euros and pounds into other assets to fund your retirement. Obtain appropriate advice where necessary.

A couple of moments of your time, along with some grey cell application as to the above points, should ensure your retirement financial plans remain on track. As usual, if I can assist you please contact me [email protected] or call 09 522 7955.

The Professional Trustee Team
© Gilligan Rowe & Associates LP

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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.
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