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Should I be in a Bank KiwiSaver scheme or a NZ owned KiwiSaver scheme?

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As of 31 March 2020, there were 33 KiwiSaver providers (source: KiwiSaver Annual Report 2020). Some of them are run by banks and some of them are run by other New Zealand owned companies. So what are the differences and which one should you choose? That’s what we’ll be covering in this blog post today.

What is the difference between bank KiwiSaver schemes and NZ owned KiwiSaver schemes?

A bank KiwiSaver scheme is one run by a bank (e.g. ASB, ANZ, BNZ). As of November 2020, banks were the largest KiwiSaver providers, and dominate the industry. However, four of our five major banks (ASB, ANZ, BNZ and Westpac) are Australian banks. The largest NZ bank KiwiSaver provider as of November 2020 was Kiwibank.

A New Zealand owned KiwiSaver scheme is a scheme run by an NZ company. There are a number of these schemes around. Some of these schemes may be non-profits (e.g. Simplicity), some may be actively managing their funds (e.g. Milford Asset) and some may be open to only a certain group of people (e.g. NZ Defence Force KiwiSaver Scheme).

Is my money safer with a bank?

It might sound surprising to some people, but your KiwiSaver money is just as safe with any other KiwiSaver provider compared to a bank. KiwiSaver providers do not actually hold your money. Instead, your money is held in something called a trust. As part of the requirements to be licensed by the FMA, it is a requirement that client money is held by a third party. This means that even if the KiwiSaver provider went bankrupt, no KiwiSaver provider would be allowed to access your money to pay off their debts.

Additionally, all KiwiSaver providers are licensed by the Financial Markets Authority (FMA), and this means that all KiwiSaver providers have to show the FMA that they will be responsible with your money and comply with all obligations under the Financial Conducts Act 2013 and KiwiSaver Act 2006. 

Advantages of bank KiwiSaver schemes

There are a few advantages of having your KiwiSaver money at a bank.

Firstly, banks generally can offer their members lower fees. This is because these banks with lots of KiwiSaver members can spread the costs of managing your KiwiSaver funds over a lot more members compared to smaller providers. But this is not always the case.

Secondly, some kiwis feel more comfortable signing up to their own bank’s KiwiSaver scheme compared to other providers. This is because of the previous experience they have had dealing with their bank in the past.

However, this doesn’t mean you should immediately put your money in your local bank’s KiwiSaver scheme, as you will see below.

Advantages of NZ owned KiwiSaver schemes

Firstly, the profits of a NZ owned KiwiSaver scheme stay in the hands of New Zealanders. This is important for some people. If you sign up to a big bank KiwiSaver scheme, there is a good chance that the profits from managing your KiwiSaver account will go overseas.

Secondly, most consumers don't seem to think banks are that trustworthy after all. According to Consumer NZ, “Just 48% of consumers think banks can be trusted.” and “Only 38% [of consumers] agree banks have their customers’ best interests at heart”. Additionally, the larger KiwiSaver providers generally have lower satisfaction ratings for their KiwiSaver schemes. 

Should I invest in a bank KiwiSaver scheme or a NZ owned KiwiSaver scheme?

Whether your KiwiSaver scheme is run by a bank or not should not be a consideration in your choice

Ultimately, other factors will matter more. For example, National Capital director Clive Fernandes describes three different factors in his blog post that can help decide what KiwiSaver fund you should be in. These factors are returns required, volatility capacity and volatility tolerance. Additionally, there are other considerations such as fees, investment policies, asset allocation, etc. There is also the active vs passive funds debate. All of this will show you there are more important factors than whether a KiwiSaver scheme is run by a bank or not.

At National Capital, we understand this. Therefore, when we advise clients on where they should put their KiwiSaver money, we give our clients different recommendations depending on these factors. To understand more about how we do this, watch the video below to understand why Sharon was grateful she chose to get advice from National Capital:

 

 

How can I get this free financial advice from National Capital?

National Capital offers a free financial advice service to help people like you become like Sharon. We take into account the variety of factors that you need to know about in order to become more prepared for retirement like Sharon. 

Want to be prepared for retirement? All you have to do is simply fill out our KiwiSaver HealthCheck, and our trained team will advise and give recommendations for your specific situation. It only takes a few minutes to do.

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