A critic of a government-backed savings scheme in New Zealand which helps people save for their retirement is calling for action saying savers are being ‘short changed’.
The issue for expats is that some of the plans, called Kiwisavers, are registered as Qualifying Recognised Overseas Pensions Schemes (QROPS) and many expats and international workers have transferred their UK pension pots in to one of them.
Now a former fund manager Andrew Blackler says those savers are seeing lower returns compared to leaving their money in an ordinary bank savings account.
He says that the country’s Reserve Bank should step in and change the rules about banks holding cash on their balance sheets to prevent KiwiSaver accounts from being undermined.
The rules state the KiwiSaver accounts are deemed to be ‘wholesale’ money and not ‘retail’ so the bank can take a chunk of the cash and transfer it to the parent bank to help shore up its balance sheet.
KiwiSavers out of pocket
The Reserve Bank considers ‘retail’ money to be stickier – with savers less likely to remove their cash, which makes the banks less illiquid. This, in turn, means that higher rates of interest are paid to these savers.
The rates for ‘wholesale’ savers are lower – and it is this which is leaving KiwiSavers with slimmer returns, says Blackler.
He said: “There needs to be a debate on the issue to bring KiwiSavers cash investors a better deal.
“The most obvious thing for the Reserve Bank to do would be to treat all KiwiSavers as retail deposits and I would suggest that a KiwiSaver fund should have a concentration limit of no more than 25% with a bank in order to receive ‘retail’ treatment.”
“Under the Reserve Bank’s rules, wholesale investors – including anyone banking money for retail KiwiSaver investors – can’t get the same deposit rates as retail investors could with New Zealand’s banks.”
Issues with moving funds
Before the global financial crisis broke in 2008, the situation was reversed and it was ‘wholesale’ savers who earned the best interest rates.
Now, Blackler says, the country’s banks are ‘awash’ with savers’ money as they try to grow their balance sheet and help protect the bank should another financial crisis strike.
However, he warns that as the world’s economy picks up the banks will struggle to attract the growth in retail banking it needs.
Though it looks unlikely that the Reserve Bank will alter their policies as Blackler insists they should.
The bank says there is an issue with a financial institution moving large chunks of money around to invest overnight which would disrupt their ratio rules that 75% of a bank’s funding must be ‘sticky’ or long term wholesale debt.
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