I was able to access great information from the Reserve Bank website that may assist your readers if you do run a piece on this subject. The website includes scenarios so people can work through a few different financial situations.
A: No, it’s not you! You’re quite right that there has been little coverage since the scheme took effect on July 1. Although this column included several Q&As earlier in the year, questions haven’t come in lately. Nor has there been much coverage in other media.
So it’s time for a reminder on this important issue.
Under the Depositor Compensation Scheme (DCS), if you have money in an everyday account, savings account, term deposit or similar and the deposit taker goes belly up, you will get up to $100,000 back.
The scheme does not cover KiwiSaver accounts or other investment funds, with the exception of cash PIE accounts that invest only in a bank’s own debt.
The range of deposit takers covered may surprise some people. It includes not just banks but also several credit unions, building societies and finance companies.
A list of those covered is on the Reserve Bank website. You can find it at tinyurl.com/DCScoverage. That page includes a link to each deposit taker’s website where the covered deposits are listed. So if you’re in doubt, it’s easy to check.
And, as our correspondent says, there’s also other easy-to-read info on the scheme on that website.
Note that the $100,000 compensation covers all your accounts with a provider, added together. Let’s say you have $40,000 in a savings account, $10,000 in an everyday account and $80,000 in term deposits – so that your total is $130,000. Only $100,000 of that is covered.
If you have a joint account, half the total is allocated to you and half to the joint holder.
The scheme is run by the Reserve Bank, but funded by levies paid by the deposit takers.
Now that the DCS is operating, some steps readers might want to take:
If you have more than $100,000 in the types of accounts that are covered, spread your money over several deposit takers. It’s not a bad idea to do that anyway, as providers compete on interest rates. A good source of info on rates is interest.co.nz.You may want to put some of your money in the riskier providers, such as finance companies, that tend to pay higher interest, now that you won’t lose the money if the provider fails. Note, though, that if that happens, it may take a while for you to get your money.
What if?
Q: Your coverage of the new Depositor Compensation Scheme has been excellent. I have questions though, in the “what could go wrong?” category.
Once a deposit taker joins the DCS for a given list of products (for example, transaction accounts and term deposits), can they ever withdraw from the scheme, for certain products or altogether?
And if they do, where does that leave their depositors? Must depositors be given enough advance notice that they can withdraw their funds before the DCS cover ends? The worst-case scenario might be for those in term deposits that don’t mature till after DCS coverage is withdrawn.
I imagine most depositors are assuming that deposit-takers, once in the DCS for certain products, must stay in the DCS for those products forever.
A: You raise a really good point, which I put to the experts at the Reserve Bank (RBNZ).
“Deposit takers licensed by the RBNZ are automatically covered under the DCS and pay levies towards the DCS fund,” it said. “They do not have the option to remove coverage from protected products.
“Depositors can rest assured that their money is protected by the DCS – up to $100,000 per eligible depositor, per deposit taker – when their money is held in DCS-protected accounts, such as transaction and savings accounts and term deposits.”
KiwiSaver and fairness
Q: I refer to last week’s letter from a disgruntled and greedy ANZ employee wanting more, and you agreed with them. I think that you have it wrong.
Let’s say an employer has four employees, all doing the same job. Adam is a foreigner on a work visa and so not allowed to join KiwiSaver. Bobby is a New Zealander but not contributing because his child has cancer and needs the money to fund a life-saving drug. Charlie and Dave are saving to KiwiSaver but Dave is over 65, and so doesn’t get employer contributions.
From an equity and fairness perspective, should the employer incur a greater cost for Charlie than Adam, Bobby and Dave? Likewise, should Adam, Bobby and Dave get lower compensation than Charlie, for doing the same job?
It is not Adam’s fault that he can’t join. Likewise, Bobby could choose to let his child die and keep saving. Also, why should older Dave receive less remuneration?
As an employer, I have a problem not paying like employees the same. I accept that if the Government imposes a law, I have to comply, but in this case that is not the case. Importantly, none of the original KiwiSaver briefing papers said this was the intent.
A: Last week’s correspondent, who said in a postscript that’s he’s otherwise happy working at ANZ, is not greedy. He just wants a fair deal for himself and his colleagues.
He was writing about the fact that ANZ, the biggest KiwiSaver provider, uses total remuneration. That means that employer contributions to KiwiSaver are basically taken out of employees’ pay.
I’m comfortable with the inequality in your hypothetical company. KiwiSaver is designed to encourage people to save for their retirement by giving them incentives to save. That means they will be better off than those who don’t take part.
It’s fair enough that Adam and other non-residents of New Zealand don’t receive the same benefits. That’s probably true in every other country, too. If Adam wants the privileges, he needs to become a resident.
Bobby is in a sad situation because of New Zealand’s policy on subsidising cancer drugs. He and his family probably have to do without many other nice-to-haves too. That’s not fair and the Government needs to change the policy. But it’s not a KiwiSaver issue.
Meanwhile, though, I would like to think the employer might continue its contributions to Bobby’s KiwiSaver. There’s nothing to prevent that.
As for Dave, the older worker, see the next Q&A.
On your point about the original KiwiSaver briefing papers, various views were expressed as the scheme evolved. I’m happy to go with the Retirement Commission’s interpretation, which I quoted last week. It says total remuneration goes against the “spirit” of KiwiSaver.
Oh, and while we’re talking about equity and fairness, it sounds as if your hypothetical employer might be a bit dodgy on gender equality – although I suppose Charlie and Bobby might be women!
What about over 65s?
Q: There is currently a lot of discussion about employer contributions to KiwiSaver for employees over 65.
I have not noticed any comments about the fact that, once 65, an employee will receive NZ Super. As they are still working, a 65-plus employee could divert the additional NZ Super payments into his/her KiwiSaver.
To make employer contributions after 65 compulsory will put additional strain on companies trying to survive in current economic conditions. The current rules may also be an incentive to hire employees over 65.
NB: I am 72, still doing part-time work and not receiving KiwiSaver employer contributions.
A: I have mixed feelings about this issue. It seems mean if an employer suddenly stops its KiwiSaver contributions when an employee turns 65, and I know that many employers don’t do that. But legally, they can.
Still, you make a good point. In almost all cases – except for people on really high pay – the extra income from NZ Super would more than cover the lost employer contributions.
Remove temptation
Q: My comment is on the value of KiwiSaver and pension funds. I have worked for an insurance company for the past 19 years. I was lucky enough to receive a contractual entitlement of 9% of my salary into a fund (still behind Australian rates). In 19 years, my balance has grown to in excess of $800,000.
I am strongly of the view that total remuneration contracts should not exist. You don’t miss the money you don’t receive up front. You will miss the security of a healthy pension balance.
A: Gosh, that’s a healthy pension balance. It shows how large contributions can really grow over the years.
I think the main point you’re making is that, with total remuneration, employees can be tempted at the start of their job, or later, to take the employer money in the hand instead of putting it into KiwiSaver.
In contrast, in the more usual situation, the employer’s KiwiSaver contribution can’t be taken as cash. And in the long run, the employee is better off.
Special health fund
Q: As a doctor of 25 years’ service, one consistent story I hear is patients who have had health insurance for most of their working careers, but as they come into retirement, their premiums rise and they can no longer afford their insurance.
Inspired by KiwiSaver, we worked with a fund manager to launch a dedicated fund to help people save up and fund their future healthcare needs. While you can argue that a separate health fund is not needed for most of us, having separate money put away helps us not spend it on other priorities.
A: Self-insurance for health costs is a lot better than nothing. You set aside perhaps the amount you would have paid in premiums – or at least a considerable regular amount – to meet health costs as they come up.
It can work well – as long as you don’t run into major expenses early on, or lots of expenses in total.
One common problem is that people end up using the money set aside for some other unexpected cost. So your idea of ring-fencing the money in a separate fund makes sense.
Readers can do that with any lower-risk fund outside KiwiSaver. Or, if you’re over 65, it could also be a KiwiSaver fund.
You’ve been lucky
Q: I would like to share with you our beneficial experience of cancelling our health insurance.
We are 82 now and cancelled when we were 65. Even a conservative estimate puts our savings at over $100,000. We have been pleased and impressed with our treatment in the public health service, with short waiting times for minor surgery and excellent treatment at a clinic for conditions including macular degeneration.
We have had to pay for specialist dermatologist and audiologist treatment from time to time. Those costs are tiny compared to what we have saved.
During this time, we have self-insured as a precaution, a nice little fund which has come in handy occasionally!
A: Lucky you – and everyone like you who has done just fine without health insurance.
With any type of insurance, there will always be uninsured people who “get away with it”. But there will also be those who really regret their decision. So much is down to luck.
If you own a house, you probably insure that against a major loss, such as a big fire, flood or landslide. The chances of a disaster happening are low, but you’re not prepared to take the risk. And yet you do with your health.
True, there’s not as much government support for those who lose their homes as for those with major health problems. But sadly, our public health system is strained. There are many stories of uninsured people facing either a long delay or a large medical bill for private care – at the very time in your life when you don’t need that extra stress.
At the risk of sounding mean, I just hope you continue to be happy with your decision as you enter a stage in your lives when medical problems are more likely. Good luck!
* Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions 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 mary@maryholm.com. 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.
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