Mary Holm: Cockiness keeps them in limelight

Q. I cringe every time I see certain people in the media giving advice.

I can't help wondering if they have any conscience about all the "mum and dad investors" who lost so much when their public companies went belly up some years back leaving shareholders with worthless scrip.

I have heard one of them several times this year being highly critical of current finance companies and the huge losses incurred for some investors.

He always follows through with how successful he has been.

It must be comforting to have such short memories.

A. I quite agree. I also wonder about the memories of the media people who ask these guys to comment.

Even if the producers or editors are too young to remember, it's pretty easy these days to check up on people's backgrounds, via the internet.

I suspect, though, that these men - I can't think of a woman in this category - are popular with the media because they are, or at least seem, so self-confident. And that, according to recent research, is what people want.

The research shows "that we prefer advice from a confident source, even to the point that we are willing to forgive a poor track record", says an article in New Scientist.

Don Moore, of Carnegie Mellon University in Pittsburgh, who did the research, "argues that in competitive situations, this can drive those offering advice to increasingly exaggerate how sure they are".

The findings from Moore's research "add weight to the idea that if offering expert opinion is your stock-in-trade, it pays to appear confident", says the article, written by Peter Aldhous.

While the most confident people are often right, he adds, there are times when the link breaks down.

"With complex but politicised subjects such as global warming, scientific experts who stress uncertainties lose out to activists or lobbyists with a more emphatic message."

The same could easily be said of investment advice.

Perhaps that explains why the men you named - I edited out their names because they would probably sue me - sound so sure of themselves when, as you say, history shows they are not so clever. Their cockiness keeps them in the limelight.

What to do about it? How about writing to the media companies every time these men appear, pointing out their pasts? And keep in mind that confidence is not the same as competence.

P.S. Maybe I should stop saying "I don't know" or "on the one hand this, on the other that" in this column. On other hand (oops) I don't know (oops again) that I could.

Q. I received my Tax Summary and IR3 tax form from the IRD and wondered about why they sent it to me, as I've never received one before. I then did a rough calculation according to the guide and I was due a refund (because I was made redundant and unemployed for a few months). Anyone who does not work a full year should complete one, as PAYE is calculated on working a full year.

I completed the entire form by myself, included earnings from dividends, interest and the more complex tax imputation credits. I also claimed for my income protection insurance which, according to my provider, I could claim for as well.

Note: At this point I would like to say the IRD made completing this form easy, with their numbered boxes and guide book.

I duly sent it off to the IRD. I then received a KiwiSaver Tax Statement, that I did not include. Did I need to include that as well?

A. No. To my knowledge all KiwiSaver investments - unless you hold shares directly through ABN AMRO Craigs - are PIEs, or portfolio investment entities. And PIEs take care of your tax for you, deducting it and sending it to Inland Revenue.

The only time the tax in a PIE might not be final is if you told the people running the PIE to withhold tax at the lower 19.5 per cent rate when it should be at 30 per cent. But assuming you did that correctly, you don't have to do anything more.

On your other point, yes, everyone who hasn't worked the full tax year, March 2008 to March 2009, should ask Inland Revenue for a summary of earnings to see if they are in for a refund - which is quite likely.

What's more, you can do it for any of the past five years. So if you've had any gap in employment in that time, it's well worth giving this a go.

Some companies help you to check if you have a refund coming, but they charge you or take payment out of your refund. You can do it yourself for free by going to www.ird.govt.nz and doing a search on "summary of earnings". Click the first item, requesting a summary, which will be mailed to you. Then follow the steps from there.

Our correspondent's comments on how easy it is should be encouraging.

Q. I am nearly through your The Complete KiwiSaver - Everything You Need to Know book and have a question which might apply to quite a few people at the moment, and so perhaps you might consider it for your column?

I am 40 years old and employed on a salary of $54,030 gross.

I am keen to join KiwiSaver and to make best use of the incentives. I understand that after three months I will receive a $1000 kick-start incentive payment, and that if I keep contributing for a year and my cumulative contribution exceeds $1042.86 I will receive a tax credit of $1042.86.

My question is what will happen if I am disestablished and without work before the three months is up, or before the year is up? Is it still worth joining now, and how do I maximise the benefits for me?

Should my employer enter into a formal change proposal the union-negotiated process takes three months in total, so I will have at least three months' notice before I am out of work. I should also receive 16 weeks' redundancy payout.

In this labour market it may take me some time to get the next job, and I may need to use my redundancy to live on and pay the mortgage. I expect I would have to stand down from receiving an unemployment benefit for awhile.

By the way, is redundancy included as an employee contribution?

A. It's pretty much always worth joining KiwiSaver sooner rather than later. For every month you are in and contributing at least $87, you get a tax credit of $87, plus employer contributions if you are employed. It all adds up - especially if there are quite a few years before you take the money out, so the money has time to grow.

In your case, if you contribute 2 per cent of your pay, you'll put in $90 a month and so will your employer. Add the $87 tax credit, and your total monthly contributions will be $267. (The tax credit is paid yearly not monthly, but it amounts to much the same thing.)

If you invest in a fairly risky KiwiSaver fund - which I would recommend at your age - the return after fees and tax might average 5 per cent a year. That means your $267 would grow to about $1400 by the time you are 65.

Admittedly, inflation will put a hole in the value of that money. But even after allowing for 3 per cent inflation, the $1400 will be worth about $700 in today's dollars.

What it all amounts to is this: for every month you delay, you could miss out on the equivalent of $700 to spend in retirement.

And all you have to put in is $90. Not a bad deal.

But what if you lose your job? You won't end up in a bind. If you are no longer employed, you don't have to contribute anything to KiwiSaver, no matter how short a time you have been in the scheme.

It's great if you can continue to put in up to $87 a month - or $1043 a year - to get the matching tax credit. But you don't have to.

You'll receive your $1000 kick-start regardless of whether you are contributing. And your redundancy pay is all yours. No contributions to KiwiSaver will be taken out of that.

If you get another job, yours and your employer's contributions will normally start again. But if you have been in KiwiSaver more than 12 months, you can take a contributions holiday if you wish. What's more, if you are in financial hardship - which might be the case if you've been unemployed for a while - you can take a contributions holiday before the 12 months of membership is up.

Obviously, though, it's best to keep contributing when you can.

In answer to your question about maximising the benefits for you, at your pay level it's best to contribute just 2 per cent of pay. If you were earning less than $52,150, and therefore putting in less than $1043 a year, it would be worthwhile to top up your contributions to that level so you would get the maximum tax credit.

Given that you have a mortgage, the best thing to do with any further savings will almost certainly be making extra repayments off the mortgage.

Q. An interesting hypothetical question came up in conversation recently.

A 64-year-old self-employed man joins KiwiSaver and contributes for five years, at which time he must withdraw all the money, including the Government's contributions?

Or can he continue to contribute $1043 a year and still receive the Government's matching contributions beyond five years?

It hardly seems credible that he would be able to withdraw his money and still continue to double a contribution of $1043 every year thanks to the taxpayer.

A. It sounds too good to be true - and it is.

Your man doesn't have to withdraw his money after five years. He can leave it there, or add to it or withdraw it at any time until his death. But - importantly - the tax credits stop at the same time as the right to withdraw starts. That's at NZ Super age for most people, but five years after joining if you join over 60.

KiwiSaver basics

The KiwiSaver Basics page on www.maryholm.com includes the answers to many readers' questions about the scheme.

Mary Holm is a seminar presenter, part-time university lecturer 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.