Home' DEMO : BNZ KiwiSaver Scheme Investment Statement Contents 6. What are my risks?
All investments involve an element of risk. Risk is the likelihood of not getting all your money back,
or getting a lower return than you expect. The main risks of you not recovering your investment
in the BNZ KiwiSaver Scheme or receiving your expected returns are summarised below. A fuller
explanation of the risks associated with investing in the BNZ KiwiSaver Scheme is contained in
the registered prospectus.
> Investment Risk: There is a risk of negative or lower than expected returns on the Fund(s) you invest
in. While all investments carry investment risk, the level of this risk varies based on the investment
sector that each Fund invests into. In general terms, Funds that invest higher proportions in growth
assets (like shares) will carry a higher level of investment risk - as they are usually most affected by
market risk and are exposed to stock selection risks. Funds that invest higher proportions in income
assets (like cash and fixed income investments) will generally have lower investment risk. Fixed
income investments are affected by interest rate movements and default rates. For Funds invested
only or predominantly in cash, the risks are the counter parties default risk and that the rate of
inflation will exceed returns (after tax, fees and expenses) meaning that the purchasing power of your
Account balance may reduce over time. Short term fluctuations in the value of a Fund are common,
particularly for those Funds with a greater allocation to growth investments. Different types of
investments perform differently through market cycles and each type of asset carries a different type
> Market risk: Investment markets are affected by a host of factors, including economic, taxation
and regulatory conditions, market sentiment, political events, inflation, interest rate movements,
currency movements and environmental and technology issues.
> Loss of PIE tax status: Although we have mechanisms available to manage compliance with the PIE
eligibility requirements, there is a risk that the BNZ KiwiSaver Scheme could lose its PIE status if there
is a breach of the PIE requirements under the Income Tax Act 2007 and we do not become aware of
the breach in time to correct it. Loss of PIE tax status could increase the Fund's tax rate to a flat 33%.
> Legislative risk: Changes to existing law or the introduction of new laws could have a significant
impact on an investment in the BNZ KiwiSaver Scheme. There have been changes previously to the
KiwiSaver rules, including the employer, employee and Government contribution rates and changes
could occur in the future. Changes to tax rates, the PIE tax regime or tax legislation generally could
also impact on your returns.
> Currency risk: As some of the BNZ KiwiSaver Scheme assets are invested outside New Zealand,
fluctuations in the exchange rate may affect the returns on those assets. The extent to which this
currency exposure is hedged can mitigate currency risk. Information on the Scheme's hedging policy
is available on page 30 or on our website, www.bnz.co.nz, or by contacting us on 0800 BNZ KIWI
(0800 269 5494).
> Liquidity risk: If there is a mismatch between the maturity profile of the BNZ KiwiSaver Scheme's
assets and the amount required to meet withdrawal requests, there is a risk that the BNZ KiwiSaver
Scheme could be unable to make payments on time. Similarly, if the underlying assets of the BNZ
KiwiSaver Scheme become illiquid, then the BNZ KiwiSaver Scheme may be unable to sell those
assets, which would in turn restrict its ability to make payments on time.
> Derivative risk: Financial instruments known as "derivatives" may be used by the BNZ KiwiSaver
Scheme to manage risk. In essence, a derivative is a financial instrument the value of which is
dependent on an underlying financial asset; for example currencies. In some circumstances,
however, derivatives can actually increase risk, by exaggerating the movement in the underlying
asset's value. Some specialist underlying fund managers may use derivatives or borrowing to increase
the exposure to selected investments as part of their investment strategy.
> Operational risk: If we, Russell Investments, the specialist underlying fund managers, the Trustee
or any service providers experience a failure of processes and procedures (including system failures
or suspension of withdrawals from their funds), fraud, business disruption or any other form of
unforeseen external event (including insolvency, receivership, liquidation, statutory management or
voluntary administration), this may affect your investment in the BNZ KiwiSaver Scheme.
> Product Risk: From time to time changes may be made to the BNZ KiwiSaver Scheme. These changes
could include changing the objective or characteristics of a Fund, the asset allocation, specialist
underlying investment managers, the third parties appointed to provide services, and fees. Further
details of how the BNZ KiwiSaver Scheme can be changed are set out under the heading "Can the
investment be altered?".
> Risk of losing QROPS status: We intend to register the BNZ KiwiSaver Scheme as a QROPS. Once the
BNZ KiwiSaver Scheme is registered, there will be a risk of losing this status. If QROPS status is lost,
there may be an adverse change to the UK tax implications for transfers from UK pension schemes to
the BNZ KiwiSaver Scheme.
If any of these risks eventuate, it is reasonably foreseeable that on withdrawal you may receive in total
less than the amount you invested.
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