This article was published on 1 September 2007. Some information may be out of date.


  • How the typical KiwiSaver investment fund differs from a finance company
  • Would it work for the government to sign a contract that it wouldn’t change KiwiSaver over the years?

Also: More winning entries for the KiwiSaver book

QWith finance companies falling over like dominoes, if you had your Kiwisaver with one of the soon to be deceased finance companies do you lose the lot?

If so how do you pick a safe one? It is scary to have to gamble with your own retirement fund (and taxpayers money). Any advice please, Mary?

AI’ve not heard of any finance company offering KiwiSaver, and I would be surprised if they do in the current climate — although who knows what the future might hold? But most KiwiSaver providers are entirely different creatures from finance companies.

Over in one corner we have a finance company, which is basically like a bank. People invest their money in it in much the same way as with bank term deposits. And the finance company lends out that money in much the same way as a bank does.

The big difference is risk. Anyone with any smarts who wants to borrow money — whether it’s for property development or to buy a used car — will go first to a bank, because banks charge the lowest interest.

However, despite the fact that banks in recent years have been keen lenders, there are some people and projects they won’t lend to. The banks are not confident that they will be repaid and, if they are not repaid, that the security on the loan — perhaps an as yet unbuilt building or a used car — will be worth as much as the loan in a mortgagee sale or repossession.

If the banks say “No”, the borrower then goes to a finance company, which is willing to take on the higher risk, but only if it gets a higher return to compensate. So it charges higher interest.

With the finance company earning higher interest than banks on the money it lends out, it can afford to pay higher interest to depositors. Hence the attraction for many investors.

As investors are increasingly understanding, though, some of those property developers and used car buyers don’t end up repaying their loans. And, sure enough, their security doesn’t cover the debt. The money just isn’t there to give back to the investors at maturity.

Over in the other corner, we have a typical company that offers KiwiSaver. While some banks are KiwiSaver providers, the provider part of their business does not operate like a bank.

The typical provider doesn’t lend money. It uses investors’ deposits to buy bonds, shares and so on.

Some KiwiSaver members, who are conservative and/or expect to be spending the money in less than ten years, will go into a KiwiSaver fund that invests mainly in bonds and what’s called cash — government and bank on-call or short-term deposits — generally 90 days or less.

Because the KiwiSaver fund pools many people’s money, it can buy and sell these investments on better terms than you or I could, and it can get a wide spread of investments. If one or a few collapse, that won’t be disastrous.

It would be unusual for investors’ money in such a fund not to grow pretty steadily.

In a less conservative KiwiSaver fund, which invests mainly in shares and perhaps commercial property, growth will depend on what happens in the share and property markets. Often, investors’ balances will go down. And if there’s a market crash, they will go way down.

But people should be in these funds only if they have a long time horizon and are willing to stay through the downturns. The markets always recover and grow again.

Over a decade or more investors in these funds will almost always do better than in more conservative funds. And particularly over long periods, investors tend to do very well.

But if you can’t stomach ups and downs, stick with a conservative fund.

Another point: Finance companies, like banks, are susceptible to “runs”. If there’s a crisis of confidence, many people want their money out at once. But they can’t all get it, because most of it is lent out. That’s led to the downfall of several finance companies recently.

I’m not saying that a typical KiwiSaver provider would cope easily with many members’ wanting to move their money to a different provider. They would have to sell some investments in a hurry, and so they may not get very good prices.

Basically, though, the assets are there to back up members’ investments. You don’t get the same “run on the bank” effect.

So how do you pick a safe KiwiSaver fund? There are no magic answers, but read on.

QIn view of your largely unqualified support of KiwiSaver, I suggest that you should support the position that anyone who signs up enters into an individual contract with the Government which binds both parties to abide by the terms throughout the contract. In other words future Governments could not change the terms. That is I believe the standard procedure in a business contract.

I pray that my children will not join this flawed scheme.

By the way my UK occupational pension fund provider failed in the 1980s and had to be rescued by the insurance industry there. It couldn’t possibly happen here to a KiwiSaver provider here could it?

AI guess anything could happen.

But do we keep our money under the mattress because the bank could fail? Do we refuse to insure our homes and possessions because the insurance company might not pay up? Do we not drive because, no matter how careful we are, some idiot might drive into us?

Life is full of calculated risks. If you don’t want to use a bank or insurance or a car, fair enough. But most people would argue that you lose more than you gain. Ditto KiwiSaver.

Your contract idea couldn’t work. Firstly, even business contracts routinely have clauses to allow for change. Also, a government is the body that makes the laws that govern contracts. Any future government could make changes that make a current contract null and void.

Nobody can bind a future government to anything. And — when you think of what past governments have sometimes done — thank goodness for that.

There are, however, protections for KiwiSavers. While it’s quite possible that future politicians could reduce incentives, anyone who doesn’t like that can simply stop contributing any time after a year in the scheme.

I suppose, theoretically, politicians could also claim back your kick-start and tax credits already earned, or make it harder to get your money out. But how long would they stay in office? I just can’t imagine that in a democracy.

What about the danger of a fund provider “failing”? There are no guarantees. But if you go with a reputable company, it’s unlikely.

The government actuary and fund trustees will be monitoring KiwiSaver providers, and the media will take an interest. If you hear anything iffy about your provider, you can readily move to another one. You’re not stuck there like finance company investors, waiting for your debenture to mature.

In the end, though, if you are still too scared, by all means sit on the sidelines and watch many other New Zealanders building their wealth.

By the way, my support for KiwiSaver is far from unqualified. It’s probably a bad use of taxpayer money. It was introduced way too fast and is therefore much too complicated. It ties up people’s money — and therefore everyone except those with a willpower problem should contribute as little as necessary to get the full tax credit.

Despite all this, everyone under 65 stands to gain by being in KiwiSaver. While I don’t want to upset you, I hope your children do join.


For a summary of KiwiSaver rules and incentives, and information on the starting date for tax credits for people in different situations, go to Click on the KiwiSaver book page and scroll to the bottom. [This page has been removed from the website. Visit for up-to-date information.]

Other sources of information are the Retirement Commission’s website, and the government’s Alternatively, call 0800 KiwiSave (0800 549 472, Monday to Friday 8 to 8, or Saturday 9 to 1.


The following are the last of the winning entries in our giveaway of 30 copies of my bestselling $9.99 book, “KiwiSaver: How to make it work for you”, published by Random House.

Contestants said in 40 words or less why they should win the book. The entries are in no particular order.

Fair, fat and fifty, got a divorce,
Kids at home, and enjoying menopause.
Work hard, sense of humour a must!
No savings, not even a trust
See light ahead, worth a look,
If you kindly send me your book

— Mary O’Keeffe, Lynfield

Please send me a free copy of “Kiwisaver” book because I am a Kiwi who is struggling to save. Thanks for that.

— Ruby Mardiono, Albany

Mary’s comment: After all the clever entries, I like your simplicity.

KiwiSaver , that’s the one
The new kid on the block
So we can save up merrily
To soften retirement shock

The Govt will start us off
With a welcome mat
$1000 to help us join.
“How’s that !!”

— Colin Stringfellow, WHAKATANE

I work for a small business and we need a ‘Know It All” (about KiwiSaver). I have decided that you are it — my obvious choice after reading a couple of your articles in the Herald. Please help! We’d love a copy of your book!

— Colleen Watkins, Taupo

Mary’s comment: Flattery will get you everywhere.

No paywalls or ads — just generous people like you. All Kiwis deserve accurate, unbiased financial guidance. So let’s keep it free. Can you help? Every bit makes a difference.

Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.