Making regular savings can be an uphill battle, but low-wage workers don't have to miss out on the KiwiSaver incentives. Photo / 123RF
COMMENT:
Q: I would be interested in your thoughts about how people struggling to live on the minimum wage can participate in KiwiSaver. The benefits are well publicised and people are encouraged to join, but first one has to live.
My wife and I have recently been on a short holiday with my sister and her daughter, who live together in a small North Island town.
My niece, a very diligent employee, works in an aged care facility where she is involved in food preparation and delivery. She is on the minimum wage. Although her job may seem menial, if she wasn't there to do this work the home would not be able to function.
During conversation, she said she did not have a KiwiSaver account because she couldn't afford it, preferring to save a few dollars each week to a bank savings account.
Although she was aware of the benefits of KiwiSaver, she did not accept my comment that she couldn't NOT afford to belong to this scheme. As she said to me, "You just try to live on the minimum wage and see how you would manage." I don't know how I would manage. In fact I'm sure I wouldn't cope.
I felt somewhat saddened after the discussion. Most letters to you seem to come from people who are well off and their questions relate to the maximum amounts and benefits that can be gained from KiwiSaver.
My questions to you, which would be helpful to my niece, are:
• Is there a minimum amount that needs to be paid into KiwiSaver each week?
• If my niece did join KiwiSaver and made small payments, would her employer be obliged to make identical regular payments?
• Can my niece ask her bank to set up the KiwiSaver account for her rather than ask her employer?
• What advice would you give to my niece?
A: I agree that too many letters in this column are from fairly well off people. And there are more that I don't publish because not many readers would relate to someone with that much wealth.
I would love to receive more letters from people on lower incomes. I would also love to see them in KiwiSaver. It's not as difficult as they might think.
Turning to your questions:
• The minimum employee contribution to KiwiSaver is 3 per cent of your pay. The adult minimum wage is $17.70 an hour, or $708 for a 40-hour week. So 3 per cent of that is $21.24 a week.
If your niece is already saving a few dollars a week, maybe she can stretch it to $21.
If she finds this too difficult at some stage, after she's been in KiwiSaver for a year she can take a savings suspension at any time. But it would be great if she could manage the $21.
• Her employer will also put in close to $21, although their contribution is taxed. And the Government will put in 50c for every dollar she puts in — up to a maximum government contribution of $521 a year.
That means her contributions are more than doubled by the other contributions. And twice as much going in means her total savings will be twice as big at the other end.
• No, as an employee your niece needs to sign up through her employer.
The employer should make it easy for her. If they don't, she should contact Inland Revenue, or write to me about it.
• My advice is simple: join. She could use her KiwiSaver savings to buy a first home if she hasn't got one already — and perhaps get help from the Government for that purchase. See the Housing NZ website. Or she could save for retirement, or both.
Your niece certainly is doing an important job. She is no doubt paying tax, and deserves to get her share of the KiwiSaver goodies.
Q: I'm a single 45-year-old lady in full-time work. I've been in KiwiSaver since it started in 2007. I have $200,000 in it, as I knew I'd use it when I find a house. It's in a growth fund.
I found a house recently that I've put an offer on and I'm still waiting for it to be accepted. While waiting, I saw that my KiwiSaver balance had dropped to $196,000.
Do you think I should move the remaining $196,000 to a conservative fund or just let it stay there? I can still borrow the $4000 I've lost in KiwiSaver. The property has only been on the market a month so they may take longer to accept me as buyer.
A: You already know my short answer. When I got your letter, last Wednesday morning, I replied: "I will answer you in more depth in my column this Saturday. But in the meantime, I would move to a conservative fund as soon as you can."
Normally, I would yell at someone planning to switch to a lower-risk fund after their balance had fallen. "Stay put through thick and thin and you'll end up better off." But you will probably be cashing in your investment in the next few weeks, and there's too big a chance your balance will fall further in that time.
Okay, now it's time for the tut-tutting — although perhaps you are new to the column and can't be expected to have read one of my repeated messages. So here it is again:
When you get within 10 years of spending your KiwiSaver money — on a first home or in retirement — it's not wise to be in a growth fund. You can never count on your balance not falling and staying down for several years.
I recommend that you move the money to a middle-risk fund once you reach the 10-year mark. Then move it again, to a low-risk fund, when you are within three years of spending the money.
It's all about avoiding what has happened to you. Actually, you're lucky that your balance has dropped only 2 per cent. By the time this column is published (my deadline is Wednesday), it might have dropped much more in a volatile market week.
Then again, the markets might bounce back. You might write angrily to me that, if you had stayed put, your balance would have been more than $200,000 by the time you have to hand over the money. Write away. I don't mind!
Although growth funds always grow over the long term, they can be extremely volatile in the short term, and despite lots of speculation, nobody knows what will happen next.
Some people in your situation would be prepared to take the gamble. But research shows that most people dislike losses more than they like gains. This is especially true when you are about to cash in an investment and therefore make those gains or losses real — as opposed to leaving the money sitting in the account for many years, during which the losses will be recovered.
As it happens, you've been lucky over the longer term as well as with your small loss.
KiwiSaver growth funds have all grown healthily in recent years, but such long, steady growth is highly unusual. Neither you nor anyone else planning to spend their KiwiSaver money in the next decade should expect that to continue.
Congratulations, though, on using KiwiSaver to grow a decent house deposit.
Q: Perhaps the beneficiary in your recent column — who received an inheritance that reduced his benefit — should look at some sort of mortgage using monies as a deposit. Beneficiaries are entitled to receive an accommodation supplement to assist paying the mortgage.
Alternatively, funds deposited in a KiwiSaver scheme are not classified as an asset and do not have to be declared to Income Support.
A: Thanks for some interesting ideas. In the first one, I assume you mean that the man could buy, perhaps, a small unit, using his inheritance as a deposit.
Before he received the inheritance, he was getting an accommodation supplement of $165 a week towards his rent. But afterwards, he no longer got that money, as he was expected to use the inheritance money instead.
I asked the Ministry of Social Development if he would receive a higher accommodation supplement if he was paying a mortgage and had higher housing costs. That depends on his circumstances, says Kay Read of the ministry.
"To be eligible for the accommodation supplement, a person must have accommodation costs more than the entry threshold applicable to their specific circumstances, such as their living situation, age and relationship status," she says.
"Depending on their income and assets, they may receive a subsidy of up to 70 per cent of their accommodation costs over the entry threshold. What is included as accommodation costs differs when a person is a homeowner compared with a renter or boarder."
It might be worth looking into.
On KiwiSaver, it's not quite as simple as you think. See the next Q&A.
Q: I'm the beneficiary with the inheritance who wrote the letter you published two weeks ago. Can I ask, if I invest the remainder (except $8100) of my now $23,000 in say, KiwiSaver, is that considered the same as spending?
Can you recommend any other appropriate investment options that might make a difference in the situation? I have been hedging on KiwiSaver because I can't get access to it till I retire.
A: At first, KiwiSaver seems to be a good idea. "Funds in KiwiSaver will generally have no impact on benefit entitlement until a person reaches 65 and is able to withdraw funds from it. At this point KiwiSaver funds will be considered for income and asset testing," says Read.
However, "Significant lump sums deposited into KiwiSaver may be considered deprivation of income, depending on the person's specific circumstances, and might affect their entitlement to financial assistance."
What's more, "Regular KiwiSaver contributions might affect a person's entitlement to Temporary Additional Support, if stopping these contributions would be a reasonable step to reduce costs or increase income," says Read.
And, says the Work and Income website: "Each case needs to be considered on its merits and you should talk to Helpline."
What about another investment where your money is not locked in until 65?
"Invested money that can be converted to cash by the client is considered a cash asset and will affect benefit entitlement," says Read. "This includes funds in a retirement scheme if the client can access these due to being over 65 years, or if the money is not locked until the age of 65 is reached."
So where are you? Perhaps considering buying a unit, and looking into KiwiSaver. Good luck!
Q: I felt compelled to write regarding your correspondent last week who suggested that someone who can write an articulate letter can work.
I have a relative who is on an invalid's benefit. This person was a high achiever academically and in sport, articulate both verbally and in writing and had a lot to offer until, sadly, debilitating illness robbed them of the opportunity to work at a young age.
We can all have an opinion regarding the level at which aspects of benefits are reduced. That is a different matter, although this case illustrates an outcome that is very unfortunate.
What is needed is a more considered view of people who struggle with disabilities. Having a health issue doesn't mean a person cannot communicate well. I was deeply saddened by your correspondent's view and hope that it is not widely prevalent in our communities.
A: So do I.
- 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.
'Debt becomes more like a rent payment that people get so used to paying.'