A: Excuse my bluntness, but it's time you — along with many others in KiwiSaver at whatever stage in their lives — took the plunge and learned more about your KiwiSaver account. You may find the water surprisingly agreeable.
Start by going to sorted.org.nz and clicking on the KiwiSaver Fund Finder near the top right of the home page. Click "Check your current fund" on the left side, and type in your fund name — which should be on the letter ANZ sent you, or other mail from them over the years.
That will show how your fund compares with others of similar risk — for fees, services and past returns. Scroll down for other details about what the fund invests in and so on.
Armed with info on the fund's past returns, you can roughly compare them with term deposit returns.
Some things to consider:
• The KiwiSaver returns are after-fees and after-tax, but they don't include membership fees. To get the membership fees, when you're using "Check your current fund", under "Combined Fees" click on "Show fees breakdown".
• The KiwiSaver returns assume the top PIE tax rate of 28 per cent, which applies if your total taxable income from other sources was more than $48,000 in both the past two years. If it was less, your after-tax return will be a bit higher.
• You'll need to use after-tax numbers for your term deposit returns. If your taxable income is $14,000 to $48,000, your tax rate is 17.5 per cent. If it's $48,000 to $70,000, it's 30 per cent. Over $70,000 it's 33 per cent. Let's say you're in the 30 per cent bracket. Inland Revenue gets 30 per cent of your interest and you keep 70 per cent. So if your interest rate is 4.2 per cent, your after tax-return would be 4.2 times 0.7, which is 2.94 per cent.
Getting too complicated? It's important to note that past returns on both your KiwiSaver account and term deposits will change in the future anyway. So we're just trying to get a rough idea. If you are in a conservative fund, average returns are likely to be quite similar to term deposits — a bit higher in some market conditions and lower in others.
This leads to another important point. Is your fund at the right risk level? Click on "Find the right type of fund for you" to take a short quiz. Note that the first question refers to when you expect to spend the money, not when you gain access to it.
At the end of the quiz, you'll not only be told which type of fund suits you, but be invited to compare all funds at that risk level. Go for it! And consider switching to a different provider. There's info on switching (see the Must-knows list on the left side) within the tool.
That brings us to whether you should contribute more to your KiwiSaver account. As you say, with no further tax credits, there seems little point. But if you would like to put other savings into something riskier than term deposits — in the hope of getting higher returns — moving the money into a higher-risk KiwiSaver account would be an easy way to do it.
A few more points:
• Many providers offer funds that are basically the same as their KiwiSaver funds, but are outside the KiwiSaver scheme. In some cases, the fees are lower. Ask your provider what they have to offer, and perhaps switch to a non-KiwiSaver fund.
• Note, though, that if you close your KiwiSaver account, you can't open a new one after 65. It may be wise to leave a bit in your account to keep your options open.
• One advantage of KiwiSaver over term deposits is that you can withdraw your money any time, whereas in a term deposit you have to wait until the term ends.
• You may have noticed above that the top KiwiSaver tax rate, of 28 per cent, is lower than the top tax rate on term deposits, of 33 per cent. That's because KiwiSaver funds are PIEs, which pay somewhat lower tax for many people. It's not a big deal, but worth taking into account.
Cut-off decision
Q: I joined Kiwi Saver in November 2009, aged 64. I understand my employer will no longer have to contribute to my fund after November 2014 due to my age and the fact that I would then be able to access the savings.
I have no intention of retiring until I am at least 72 or longer if I can work part-time.
My fund is very low risk. Costs are covered but profits are small, which at my age suits me.
Is there any benefit in me continuing to contribute to KiwiSaver after November or should I just withdraw the funds and put them in my savings account at 4 per cent interest?
A: See the Q&A above. But there's another important issue for you.
According to a recent survey of members of the Employers and Manufacturers Association, 46 per cent continue to contribute to their employees' KiwiSaver accounts after they turn 65; 29 per cent stop; and 25 per cent said they hadn't thought about it.
Once every employer has decided, it seems likely that more than half will keep contributing. Ask your employer what the company's plans are, while perhaps pointing out that trend.
With several more years of work ahead of you, continued employer contributions would clearly make it worthwhile staying in the scheme. I imagine your employer would expect you to keep contributing as well. But there'll be nothing to stop you from also making withdrawals at any time if you want to.
Good luck on the chat with the boss!
Withdrawal call
Q: After about six years, and at my age of 68, I can withdraw my $45,000 KiwiSaver funds at any time. But should I?
My company (I am a majority shareholder) is continuing to contribute 3 per cent of my salary and I am contributing 4 per cent, so the amount is growing each month.
I am aware that the Government no longer contributes, but having 7 per cent of my salary invested each month in KiwiSaver seems a better deal than, for example, contributing 4 per cent of my salary to another safe investment.
I am in a conservative KiwiSaver plan, so growth is probably less than it could be. Please advise.
A: Given that you're a majority shareholder in your company, I presume that to some extent your employer contributions ultimately come out of your own pocket. But only "to some extent". So you might as well continue as you're going.
It's interesting to note that all three of you readers seem to be in conservative KiwiSaver funds. That's not a bad idea in your 60s. But, as noted above, you might all consider moving to something a bit riskier if you're not planning to spend the money in the next few years.
Look for more Q&As about KiwiSaver in retirement over the next few weeks.
Put-down unwarranted
Q: I agree with your comment last week about a correspondent's use of the word "amazing", which you have self-acknowledged as "a bit mean". Yes it was.
Not everyone might choose to use the same terminology as you. Hey, I think it's cool that he is not too jaded to find things "amazing"!
The writer's letter was full of enthusiasm. He was probably thrilled to see it in print and also to read your reply until he got to the last half, after which he would have felt humiliated and put down. Nothing like rubbishing your contributors! I consider putting people down irrelevant and unprofessional.
The reason I am bothered to email you about this, is that I am reminded of the similar, but worse event a while back, where you rubbished somebody's grammatical errors. At the time I thought of my son who is dyslexic. Despite his high IQ, he would have enormous trouble writing a letter of that sort. It would be full of spelling mistakes and pretty much no grammar of any sort. It would take 100 times the effort that might be required from you or me.
His confidence would be devastated to receive the criticism you slated on that person and it would almost certainly ensure that he would never ever write to anybody where he could be publicly humiliated again. An outcome you may not have considered. We have spent years teaching him it is okay to not be perfect all the time and that he does not need to hide from written communication.
I am not suggesting the earlier person was dyslexic. However, it needs to be kept in mind that not everybody is blessed with great literary skills and also not everyone has similar advantages and levels of education. That does not mean they are stupid or deserve to be put down.
I imagine you might view your column as appealing to those who wish to better their personal financial management. Isn't that something that should be encouraged for all New Zealanders, not just those who have the advantage of a good education or the luck of good literacy skills?
Hopefully you will stick to financial advice in the future and not indulge in the small-minded practice of putting others down. It does not reflect worthily on you.
A: Sorry if I offended you, your son or anyone else.
I usually just quietly correct correspondents' errors — including one in your letter! But every now and then my alter ego — the former subeditor, daughter of an English teacher and lover of the language — pops up and says, "Enough!"
• Mary Holm is a freelance journalist, member of the Financial Markets Authority board, director of the Banking Ombudsman Scheme, seminar presenter and bestselling author on personal finance. 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 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.
