Accessing Retirement Savings to pay Creditors
The Ministry of Business, Innovation and Employment is seeking written submissions on the questions raised below. Here is what we have submitted.
Q1:
Do you agree that a deliberate policy decision needs to be made to create a uniform approach to retirement savings in bankruptcy in New Zealand?
A:
Not necessarily.
However, it is not a good look for one branch of the crown to have to pursue policy determination through the Courts.
Q2:
Are there additional factors or features of the current context that we should consider in our assessment of the problem?
A:
An individual could invest in financial assets personally. The point of the Kiwisaver scheme was to make this easier and cheaper for individuals to do. This was expected to encourage savings for retirement and various incentives have also been provided to further encourage individuals.
An individual could also form a trust and invest in financial assets directly. These could include PIE investments that collect the tax incentives of non-Kiwisaver PIE investments.
If Kiwisaver investments are to be available to creditors in the event of bankruptcy many advisors would recommend people that are running a business to make PIE investments into their Trust instead.
The Kiwisaver scheme was designed to allow people to invest with all the details taken care of.
Q3:
Do you agree that the policy outcome should try to preserve some of the core principles of retirement savings policy and insolvency law?
A:
I'm not sure you have stated anywhere what these are.
We would agree that the 2 year rule for voidable transactions should continue to apply to dispositions of personal wealth.
Q4:
Are there any additional outcomes that we should seek to achieve through this policy process?
A:
Why not bring asset protection to the masses!
Q5:
Do you agree with the proposal to realise a portion of a bankrupt's retirement savings?
A:
Yes and No.
Personal retirement savings should be outside the realm of bankruptcy at least to the extent of being in a Kiwisaver.
Q6:
Or should a bankrupt's retirement savings be protected and not be made available to repay creditors?
A:
Same answer as question 5.
Q7:
Or should a bankrupt's retirement savings be fully realised in order to repay creditors?
A:
Same answer as question 5.
Q8:
Of the options presented above, what is your preferred option and why?
A:
Protect all Kiwisaver funds from creditors.
That has the added benefit that there is no drag on the state later.
Q9:
If Option 3 is chosen what percentage of a bankrupt's retirement savings should be available to creditors and what percentage should be retained? Please explain.
A:
Only the late contributions.
This is required in order to stop short-term games where all available funds are thrown at Kiwisaver as Bankruptcy approaches.
Q10:
Do you have any comments on the implementation and workability of any of the options?
A:
Keep it simple and keep it properly defined.
Let's make sure the Official Assignee doesn't need to go to Court again on policy matters.
Q11:
Are there any other options that would achieve the outcomes sought that we have not considered here? If yes, please explain.
A:
No
Q12:
Do you agree with the proposal to allow retirement savings to form part of a Summary Installment Order process?
A:
You have not specified what the details of this term "Summary Instalment Order" (SIO) are. Not every reader will know.
If the Kiwisaver funds are to be protected then that protection should not extend to potential further contributions while subject to a SIO.
Q13:
We welcome your comments on any of the other additional issues we have outlined above.
A:
So:
Kiwisaver funds are protected, except perhaps for the last two years prior to bankruptcy or the acts of being bankrupt.
You don't get to add to your Kiwisaver while subject to SIO / working through your bankruptcy.
Q14:
Are there any issues we have missed that you would like us to consider?
A:
Should there be some sort of penalty to prevent a person who has gone bankrupt cashing in their Kiwisaver scheme due to overseas residency? Perhaps a separate rule for Australia residence versus other.
Maybe in this circumstance something is returned to creditors.
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