A reader asked whether New Zealanders should worry about the government accessing their KiwiSaver savings in a financial crisis. The short answer is no — but the conversation raises a few other things worth understanding about the scheme.
A reader recently put a question to RNZ's money correspondent Susan Edmunds that many New Zealanders have probably wondered about: if the country faced serious financial difficulty, could the government of the day reach into people's KiwiSaver accounts and take the money? Edmunds addressed the question directly.
The answer is no — and it is worth understanding why, and what the actual mechanisms are that could affect your retirement savings.
The legal position
KiwiSaver savings are held in registered schemes and are not accessible to the government in the way, for example, that some other countries' sovereign wealth funds might theoretically be tapped. The government cannot unilaterally direct that KiwiSaver balances be used to fund fiscal needs, any more than it could reach into a bank account and withdraw funds.
What the government can do — and has done — is change the settings of the scheme itself, as seen in debates over contribution rates and compulsory membership. Contribution rates have been adjusted over time, and there have been debates about whether compulsion to join should apply to all workers. Those are policy decisions that affect how the scheme operates going forward, but they do not involve the government taking money that members have already saved.
As Edmunds noted in response to the reader's question, the concern in the industry is not that the government will seize funds, but that a series of small changes to the scheme's rules can gradually erode public confidence in it. When people start wondering what else might be possible, that uncertainty has its own cost.
What a fiscal crisis could actually affect
If New Zealand did face serious economic strain, the primary way that could flow through to individuals' retirement outcomes is through New Zealand Super. The government could choose to change the means-testing settings for NZ Super — the universal pension available to New Zealanders from age 65 — in ways that reduce payments for people with larger retirement savings, including balances held in KiwiSaver.
That would be a separate policy decision, sitting outside the KiwiSaver scheme itself. It would affect the income people can expect from NZ Super in retirement, not the money they have already accumulated in their KiwiSaver accounts.
The practical implication is worth noting: for people with significant KiwiSaver balances, the question is not whether the government will take the money, but whether future changes to NZ Super's income-testing rules could reduce the part of your retirement income that comes from the pension.
Life insurance and retirement: another reader question
The same Q&A touched on a related issue that comes up frequently: whether it makes sense to maintain life insurance once you are approaching retirement.
Life insurance tends to become more expensive as people age, since the likelihood of a claim increases. The extent of that increase depends on the type of policy. Policies with level premiums tend to rise roughly with inflation over time, while rate-for-age policies can jump more significantly as the insured person moves into older age brackets and is viewed as higher risk.
For someone moving to a fixed retirement income, the question is what the insurance is actually for. If the purpose is clearing debt — a mortgage, say — so that a partner is not left with it, life insurance can still make sense. If the purpose is leaving an inheritance or building an estate, the math changes. Edmunds recommended discussing the specifics with a financial adviser, since the right answer depends on individual circumstances including health, debt levels, and the nature of the retirement income being relied on.
This article is for general information only and is not personalised financial advice. Seek advice from a licensed financial adviser (registered on the FSPR) for guidance specific to your situation.