Mary Holm: What happens to KiwiSaver when you die

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COMMENT:

Q: I am wondering what could happen to my KiwiSaver account if I were to die. My will states that my assets go to my next of kin, who is my husband, or in the event of him being also deceased, then in equal shares to my four children.

My query is: would this KiwiSaver inheritance have to be cashed up immediately or could it just be transferred to my dependants, who could then decide to cash it in at a more profitable time than right now?

Also, please, what would be the situation with regards to my small share portfolio, which was worth around $150,000 prior to Covid-19? Would that have to be cashed up or just transferred to dependants to cash up at a later date?

A: Gosh, the ramifications of a sharemarket downturn! But this is one worry you can wave away.

When somebody with a KiwiSaver account dies, their savings have to be turned into cash to give to their beneficiaries. Nobody else can own your KiwiSaver account, or a part of it.

But if your heirs wanted to keep the money in KiwiSaver or similar investments, as soon as they got the cash they could put it in their own KiwiSaver accounts or shares or bonds.

If there's a downturn at the time, it's true there would be less cash coming out of your KiwiSaver account. It would be a bad time to sell. But your heirs would get the money at a good time to buy into their investments. The two effects cancel one another out.

By contrast, if your KiwiSaver were cashed up in a sharemarket boom, it would be a good time to sell but a bad time to buy. It all comes out in the wash.

If you are keen that your heirs keep the money in KiwiSaver investments until they need it, you could put a letter to that effect with your will — which would at least tell them what you prefer.

On your shares, that's simpler. Unlike KiwiSaver, the ownership of shares can be transferred to your heirs.

Another kind of wealth

Q: I remain content with my KiwiSaver choices, which continue to suit my circumstances. I experienced the recent rapid descent with interest (observational rather than monetary!).

It caused me to make a small adjustment to my will, because the composition of my estate tilted — something others may find worthwhile thinking about as the "cash value" of their investment dwindles for the time being.

And, of course, there's no guarantee where things will head over the next year or two. I still check daily, but log recent assessments against the healthy net value per annum calculated since the fund began.

Meantime, I'm enjoying the opportunity to help out with grandchildren (who form part of our bubble) during the lockdown — a different kind of wealth.

A: Indeed. It's not all about money. Actually, most of it's not about money.

But you raise a good point. If people plan to leave, say, a share portfolio to one heir and a property to another, they may want to keep an eye on the relative values of the two.

And good on you for judging the sharemarket downturn in the context of long-term gains.

Waiting for advice

Q: I'm writing in relation to your article last week, "There's no use crying over a rash KiwiSaver move". The advice that you provide to this individual is sound, practical and will help to reduce the emotional burden associated with this decision.

Here's what I felt was lacking:

• The individual was not encouraged to write to Westpac with a complaint for the poor service received from the financial adviser team. A week is a very long time to wait in the markets. At 67 and nearly retired, access to a financial adviser is critical, especially during an unprecedented, volatile time.

• Westpac's advice to its client to complete an independent risk profile exercise at a time when the markets fell 40 per cent is irresponsible.

• The risk profile exercise the individual completed put him into the conservative or cash fund. Was Westpac's initial assessment of this individual's risk profile, as moderate, incorrect?

At the crux, if this individual had the opportunity to speak to a financial adviser, he probably would have made a different decision to hold the moderate fund, rather than switching to the cash fund and later to deposits.

The service this individual received from Westpac was appalling. Please acknowledge this.

Westpac's financial advisers should be held accountable. They should offer better advice and access. Acknowledging this is how the integrity of our financial institutions improve.

A: My priority last week was to comfort the reader and give him some guidance on where to go from here.

But you raise some good points. I put them to Westpac after last week's correspondent agreed that I could give the bank his name, so they could look into what happened.

My first question was about whether someone should have to wait a week to be in touch with a financial adviser. Westpac says the man visited their Whangārei branch on February 27, where he was encouraged to speak to an adviser.

"Our records do not mention a delay to talk to an adviser, but this may have been possible as it was a very busy time for our team. Most delays were of no more than a few days."

I then asked, on your behalf, whether it's appropriate to tell someone to use a risk profiler in a volatile market.

Westpac's reply: "Yes, this tool is a guide to help people understand their attitude to risk and which fund is right for them. It is reliant on customer input to confirm the purpose and time frame of the investment and the customer's attitude to investment risk."

I can't argue with that. However, it would be good if the tool also stated: "If you find you're in the wrong fund, seek advice before switching funds." Moving all your money at once — as last week's correspondent did — is often not wise.

On your third point, Westpac says it has reviewed the financial advice given to the reader last June, "and we believe it is sound and based on the customer's goals, time frame, experience and risk profile".

In late February, the bank says, the reader completed the risk profiler, which confirmed that he should be in a moderate fund. However, "In March our call records note that the customer used the risk profiler again and it pointed more towards the cash or conservative fund. Given the market decline and volatility, the customer's responses may have been influenced by what was happening in the market at that time."

If only the bank had strongly urged our reader at that point to take no steps without advice!

And Westpac acknowledges recent turbulence has been stressful for some. "As well as endeavouring to talk to as many members as possible, we have also communicated about market volatility through our social-media channels, emails to members and our website.

"We are in touch with this customer to offer further financial advice to assist him in making a good investment decision for his long-term needs."

Beyond the details of this case, the main issue is whether banks and other KiwiSaver providers should support their members better in volatile times.

The Financial Markets Authority appears to be saying so. "We have urged KiwiSaver providers to support their customers through this current period of volatility and uncertainty in the markets. We also recognise that providers will be facing increasing call volumes," says an FMA spokesperson.

"We have urged firms to give class (general) advice to concerned customers where they are able to, and many are doing this.

"There will be situations where it is necessary to provide a level of advice and support that is closer to personalised advice, to be able to respond to the individual circumstances. We recognise that providers may find it difficult to offer this level of advice to everyone calling them currently. But we do expect them to consider what is the best and most effective way to help each customer at this time."

My tuppence worth: Banks are hugely dominant as KiwiSaver providers, having picked up members easily from among their customers. Maybe they should be hiring more financial advisers.

The FMA adds, "If the customer is not satisfied with the way they have been treated then it is important for them to use the complaints procedure available to them." If our reader isn't happy with any further help Westpac gives him, it might be time to contact the Banking Ombudsman Scheme.

Closed and opened

Q: Once funds have been withdrawn in full — when you're over 65 — is your KiwiSaver account closed or does it remain open for future investment?

This question was prompted by the statement of a submitter to your column that their plan, after cashing up, was to reinvest in KiwiSaver at a later date.

A: Your account is closed once it's empty. But that's no big deal. You can open a new account whenever you want to.

A message to mothers

Last September, I published a message to fathers near Father's Day. I said then that I would send the same message to mums as their day approaches — next Sunday, May 10.

The world has changed a lot since then, with limitations on shopping. But still, I bet there's some silly Mother's Day purchasing going on.

So the question for mothers is: do your family members need to "prove" their love by spending heaps on you?

How about talking to the family about how you would like to celebrate Mother's Day in a way that doesn't cost much? If your children no longer live with you, perhaps a phone call from them is all that's needed.

I don't like meanness, but giving doesn't have to have a price tag attached. I'm so sick of hearing about people with big, unnecessary credit card debts — often run up on gifts the recipient doesn't even like. And in this time of uncertainty, big spending makes even less sense.

Let's do a Low-Money Mother's Day this year.

- Mary Holm 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 are personal, and 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 or click here. 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.