Mary Holm: KiwiSavers seek solid ground

KiwiSaver investments have been compared to the shaky situation in Christchurch - with liquefaction a possibility. Photo / Sarah Ivey

As someone who had prepared for their retirement, I made KiwiSaver part of the package. Why can't Governments stop tinkering with people's plans for their futures?

Every change of Government, we get changes to super and retirement plans. Enough is enough. They are talking about changing the eligibility age for the pension. How are people to prepare for the future, when everyone in New Zealand is now like the people in Christchurch - standing on shaky ground, with liquefaction a possibility with each change of Government, because there is no solid ground that people can depend on.

Nothing stays in place for longer than one or two terms, unless there is no change of Government.

Even then there's no guarantee. We've seen Labour change KiwiSaver more than once, and now National is about to do the same.

I agree that it would be good if KiwiSaver changes stopped. And I said so in the early days of the Savings Working Group, late last year. But my fellow Groupies pointed out that the hurriedly designed scheme needs improving, and what's more the Government desperately needs to cut spending or we could end up with sky-high mortgage rates, a lot fewer jobs, slashed public services and lots of other nasties.

Compared with that list, some KiwiSaver adjustments are not that hard to take.

Similarly, there are good arguments for raising the NZ Super age, with Baby Boomers starting to swell retirement numbers.

But I can't see that happening fast. A recent Retirement Commission review recommended increasing the age by just two months a year, from 2020 to 2033, by which time it would be 67. Such a change would be hardly earth shattering, to stick with your metaphor.

Change to KiwiSaver and NZ Super is inevitable. Nobody can bind a future Government. I suggest you make the most of what's there now, knowing that no Government will do anything really shaky to 1.7 million-plus KiwiSavers or to the millions who would be affected by drastic changes to NZ Super.

Not completely perfect

How hard will it be to get our funds out of KiwiSaver if I am desperate? That is subject to regulation.

When can I retire? That will be subject to regulation. Is Government guaranteeing my funds? No. Can I do anything to protect my equity in KiwiSaver? No.

KiwiSaver is definitely not the panacea you claim it to be. Please in future try to provide a more balanced view to the public.

Where were you when I've written - often - that the big downside to KiwiSaver is that your money is tied up, and that it's therefore wise to contribute only enough to get the incentives, and do further saving elsewhere?

And what about my complaints that some KiwiSaver fees are too high - so it's important to keep an eye on fees?

But I struggle to come up with other downsides. And I have some slightly different answers to the questions you pose, as follows:

* You can withdraw money if you have serious financial problems or illness.

* Although the Government decides when you get access to your KiwiSaver money in retirement - which is fair enough seeing they subsidised it - you can retire whenever you like.

* You're right, there is no Government guarantee on KiwiSaver. Nor, after this year, on any other investment except Government bonds and the like. So don't invest anywhere, if you like, and retire on NZ Super alone.

* There are two KiwiSaver funds - run by Fidelity and Westpac - that guarantee you won't end up with less than your total KiwiSaver contributions. Alternatively, you can invest in a KiwiSaver fund that holds only Government and local government securities and short-term bank deposits. If such a fund went bad, we would have more to worry about than KiwiSaver.

* I've never made any claims about panaceas - just that KiwiSaver can be hard to beat.

Short-sighted

I love KiwiSaver, even with the changes. I'm a terrible saver and through KiwiSaver, ignoring my student loan, I'm actually technically solvent for the first time in my adult life; that is, I have more in KiwiSaver than I owe in debt. Surely that can only be good for the country if applied en masse? I can actually dare to dream that my husband and I will have a deposit for a house in a couple of years.

Does it worry you how short-sighted people are when they think about the small amount they put in every week?

It's challenging rather then worrying - and people are learning.

Meanwhile, though, it's great to hear about your attitude. Now, if you'll just promise to have a blitz on that debt, I'll be really happy.

Tax-credit queries

In your last column, under the heading Changes to Tax Credit, you asserted that notwithstanding the halving of the Government subsidy to $10 a week from July this year, we should continue to pay in at least $1043. Why?

Does your advice apply to self-employed, unemployed and beneficiaries?

Yes, my advice applies to all non-employees, plus lower-income employees who would otherwise contribute less than $1043 a year.

From July 1, the maximum tax credit drops to $521 a year, and you get 50c per $1 you contribute. So to receive the $521, you need to put in twice as much, or $1043 (numbers rounded to the nearest dollar).

If I'm starting KiwiSaver now and put in $1043 before June 30, do I get the Government tax subsidy of $1043 from July 2011?

No. In your first year in KiwiSaver, your maximum tax credit has always been proportionate to how much of the KiwiSaver year you have been a member. The KiwiSaver year runs from July 1 to June 30. So if you join any time in June, your maximum is one 12th of $1043, which is $87.

I joined KiwiSaver at 64 years of age, in mid-May last year - about six weeks before the end of the KiwiSaver year - opting for a low-risk fund.

I put $1040 in, expecting that to be matched by the IRD tax credit. With the first anniversary coming up I was about to send in my second $1040. On checking my account, instead of the $3000 plus I was expecting, I had a little over $2000 - my initial $1040, the Government's $1000 kick-start, and a miserly $149 of IRD tax credits.

What I hadn't read in any of the publicity material was that in the first year of KiwiSaver, the tax credit is on a pro rata basis. I contributed $850 that I didn't need to. It will sit there earning negligible interest for five years - cash I could have used for other things.

Have I been blind to something obvious, or is this point tucked away in the fine print?

Perhaps you've been reading the wrong stuff. I've mentioned this many times.

I think, though, that you're over-reacting. People who join KiwiSaver over 60 get the best deal - receiving thousands of dollars from the Government while tying up their own money for only five years.

If you look at how much you put in and how much you take out again, KiwiSaver will be way better than any other investment of comparable risk - despite the wallowing $850. Stop moaning and deposit that next $1040, which will indeed be matched!

Currency pain

We came over to live in New Zealand seven years ago. We decided to bring all our UK money with us. Some was sent earlier as and when we sold our business, our home and closed our savings accounts, etc.

At first we got $3 to the pound, shortly after we got $2.90, it then fell to $2.70 - by which time we had transferred our total wealth.

Our UK pensions are sent directly to our NZ bank every month. They are subject to the exchange rate on the day, and we have seen a considerable drop since we arrived.

A few months after our arrival our sons-in-law emigrated to New Zealand, and they decided to leave most of their money in the UK - even having their UK pensions paid in to their UK bank to draw on when they need to.

They argued the rates would improve so they would wait. However, while we have enjoyed interest rates far higher than in the UK, the exchange rates have worsened. Today they would get around $2 to the pound. They admit they got it wrong but still wait and hope the exchange rate will improve dramatically.

We would urge anyone to take a deep breath and bring their money over so they can start earning decent interest rates. Okay, they are not as good as seven years ago, but they are still better than in the UK.

There's lots to be said for simply moving your money whenever you move countries, and getting on with life. But it's also good that you phased the money transfers over a bit of time, so that in your case you got $3 for at least some of your pounds. Your sons-in-law would be wise to start similar phasing.

But rather than getting cocky around them, it would be kind - and fair - to acknowledge that it's sheer luck that you've done so much better than they have. The exchange rate could just as easily have gone the other way. As for relative interest rates, read on.

Sterling solution

Regarding the person with several thousand pounds sterling in the UK, they should be getting some interest, or at least can arrange things so they do! We have funds in Nationwide Building Society (similar to a bank and with the same level of British Government guarantee) and receive over 4 per cent gross on term deposits, with 20 per cent British withholding tax deducted, which can be claimed as New Zealand tax paid.

Other banks have similar deposits, and with the amount involved your reader's funds could be split into £10,000 aliquots until eventual staggered remission to New Zealand.

I know nothing about Nationwide, but its website suggests you're right. This could be useful info for the sons-in-law too.

Note to readers

Since the Budget I've received more letters to this column than ever before. While only a small portion of letters are ever published, the chances are lower just now. If you're planning to write, I suggest you hold off for a while!

Mary Holm is a freelance journalist, part-time university lecturer, member of the Financial Markets Authority board, director of the Banking Ombudsman Scheme, seminar presenter and bestselling author on personal finance. Her website is www.maryholm.com. Her 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 or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.