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What if my Scheme winds up?

 

 

Q.        I turn 63 in October. I have been in the Firstchoice Kiwisaver Scheme since 1 July 2007.  I recently received a letter from them saying “As a Firstchoice Kiwisaver Scheme member, we would like to let you know that we are no longer accepting applications to join Firstchoice from 21 February 2013….We are considering some options, including the possibility of transferring Firstchoice members to an alternative scheme in the future. This would only be done by members’ consent or Financial Markets Authority approval. We will contact you if we decide to go ahead with this option.”  Can they do this?

 

A.         Yes they can.  If you look in the investment statement you should find mention of ‘winding up’ there.  It is not done lightly and there will be a consultation process with the Trustees of the Scheme, the Financial Markets Authority and the investors.  If this happens investors will not be paid out (because they are generally locked in to age 65) - they will be transferred to another Scheme (either their choice or a ‘do nothing’ default switch).  You could say it’s been your Firstchoice but it won’t be your last!

 

There are currently 29 Scheme providers listed on the Government KiwiSaver website.  KiwiSaver is a long term savings strategy and not all of the Schemes that exist today will be around in 10, 20 or 50 years’ time.  We have already seen some amalgamation over the past 6 years.  The National Bank has merged with ANZ while AXA has been taken over by AMP.  This means changes for all KiwiSaver members in those Schemes. 

 

The Firstchoice Scheme was set up for insurance company Sovereign Assurance which is part of the ASB group of companies.  The Scheme has 15,000 members spread across no fewer than ten funds going all the way up the risk ladder from the Cash Fund at the bottom to the Active High Growth Fund at the top.  It is a small Scheme compared to other KiwiSaver Schemes.  Does that matter?  Yes it does.  It means that the internal costs of each fund are spread across a smaller number of investors, which may translate into lower returns.  It is also not cost-effective for ASB to run two Schemes.

 

ASB is one of the six fund managers selected by the Government as a default provider when KiwiSaver started in 2007.  This means that one in six new members who do not select their own provider have been randomly allocated to the ASB KiwiSaver Scheme (not Firstchoice).  This has been hugely successful as can be seen in the numbers.  The ASB Scheme is the largest single KiwiSaver Scheme with 370,000 members and $3 billion in funds under management.

I asked Blair Turnbull, Executive General Manager Wealth and Insurance for ASB, whether the other ASB KiwiSaver funds were similar to Firstchoice.  He replied: “Yes. The NZ Cash, Conservative, Moderate, Balanced and Growth funds in FirstChoice KiwiSaver all have equivalent investment options in ASB KiwiSaver – namely, the asset class exposures are managed exactly the same.”  He added that “The admin fee is $0.50 per month cheaper in ASB KiwiSaver.”

 

If you don’t take the initiative and move to another Scheme yourself, ASB will probably do it for you in due course.  You can look up your fund’s performance on the Firstchoice website or at www.interest.co.nz and compare it with ASB’s equivalent fund.  Other important considerations in choosing a Scheme are fees, the size of the Scheme and its underlying funds (small funds are more expensive to run) and the quality of the fund manager communication.  If you want help with your decision you should talk to an authorised financial adviser.

 

Shelley Hanna is an Authorised Financial Adviser FSP12241.  Her disclosure statement is available on request and free of charge by calling 8703838.  The information contained in this article is of a general nature and is not intended to provide personalised advice.  If readers have any KiwiSaver questions they would like answered please go to www.peak.net.nz or email shelley.hanna@peak.net.nz.

  

Published in the Hawkes Bay Today 19 March 2013