If have to rely on fishing for a feed, KiwiSaver contributions may not be top priority. Photo / Dean Purcell
OPINION:
Q: In our area, many families subsist on a limited income supplemented by hunting and fishing. Income often comes from casual or seasonal work. Even with seasonal work, the people will often not work a full week. It appears that once they have earned their expected minimum income, that's it for the week.
Increased hourly rates also don't have an effect, but seem to enhance this culture. Sometimes I despair at their lack of incentive to improve their situation.
It recently dawned on me that one way to help would be to make it compulsory for employers to make KiwiSaver contributions for all employees – regardless of whether they are contributing personally.
This would be a huge benefit for those who are unable to make or choose not to make personal KiwiSaver contributions. Every employee would have an increasing KiwiSaver balance. Those not contributing personally would be surprised at how their retirement savings are increasing. They may even be incentivised to start contributing themselves.
Some employers may squeal, but under the current system there is already a chance they may have to make KiwiSaver contributions for all their employees. The country also benefits from increased savings.
A: Probably my biggest concern about KiwiSaver is that it widens the gap between the haves and have-nots. Many on lower incomes have opted out of KiwiSaver when they got a job, are on a savings suspensions, or have not been employed so have never been enrolled in the scheme.
So I like your idea. I would hope that good employers encourage their employees to join KiwiSaver anyway. And, as you say, an employer might find all their employees are in the scheme anyway.
When that's not the case, having to contribute for employees who are not contributing may not add hugely to expenses. After all, if we're talking mainly about those on lower incomes, 3 per cent of their pay is pretty small.
And there are the advantages you mention, as well as some reduction in the wealth gap. I especially like the idea that when people see their balances grow, that might encourage them to contribute.
Hand in hand with that, I would like to see employees being allowed to contribute just 1 per cent of their pay to KiwiSaver. For someone on the minimum wage of $20 an hour, working a 40-hour week, that would amount to $8 a week – which pretty much everyone could afford.
This could be linked to the "Small Steps" option proposed by the Commission for Financial Capability, which would automatically increase people's contributions by half a percentage point each year. The 1 per cent would rise to 1.5 per cent after one year, to 2 per cent the year after and so on, up to 10 per cent.
The employee could opt out of those increases whenever they choose, but hopefully many would stay in, at least until they are contributing, say, 3 per cent.
The Government has said it's been looking at various KiwiSaver improvements for some time. Action please!
Q: On real estate commissions, when we last sold our house I employed an agent from a firm with the highest commission, because she had an excellent track record of selling houses for good prices.
I told her what we needed as a "net" figure and that we would not sell for one cent less. How she got that was her business – including whether she cut her commission. She got us our figure, and got her full commission.
Too many people think in terms of gross price and the commission of the agent instead of the net price. Better to go with the best agent at negotiating, irrespective of their commission, IMHO.
A: I've often wondered how you tell who is an outstanding real estate agent. Sure, there's reputation. But could that be hype? Salespeople can be good at selling themselves, too.
When I'm buying a house, I've always thought that I'm not affected by what the agent says or does. All I'm interested in is the house. But perhaps good agents affect buyers in ways we are not aware of. And I suppose one agent may be able to negotiate a better price out of me than another agent.
So your approach is probably a sound one. I certainly like your net amount idea – as long as you've done your homework, and probably got a professional valuation of your property, so you really know what is a good price.
Q: I am now in my 90s but owned my own real estate company for 53 years in a provincial city. I would like to point out the restrictions to our industry in my early days.
Commissions were restricted to 2.5 per cent. We had to pay all our own advertising. No sole agencies. Not allowed to work Sundays.
With all these restrictions, we still made a comfortable living, and the claims on our fidelity fund were nil.
A: Interesting to learn about what happened "long ago". What about "far away"? See the next Q&A.
Q: When we sold our home in Silicon Valley, California, six years ago, agents were hungry for listings. The standard rate is a flat 6 per cent. We interviewed three or four local agents, and the guy who does the most business in the area immediately dropped his fee to 5 per cent.
Nobody else budged, because agents carry a lot of cost. But the agent arranges all the work to be done. They pay for full staging. So for us, the house was fully prepared and staged. There was a full weekend open home – two days, all day. (We went away for the weekend).
Americans don't sell homes at auction, they use a closed-tender system. On Monday we received a spreadsheet of offers, the agent worked over a few of them for us, and we were very happy with the result.
In Silicon Valley, you would buy a solid home in good enough condition that you would not expect to do any work to it for decades: full upgrades to kitchens and bathrooms prior to sale is standard. Painting and landscaping, also. There is also a state-required multi-page disclosure form to be completed by the seller. In New Zealand the apparent procedure if you are selling a home with defects is NOT to tell the agent – what he doesn't know, he doesn't have to disclose. A devious seller is allowed by law to slip quietly between the agent and the poor buyer about to be ripped off. It's an appalling practice.
In California, sellers are guided to each area of possible concern: electrical, plumbing, roof, fences, water damage, neighbours' dogs, repairs you've made (and who made them). You must disclose any work done within the past seven years.
We had a sewer repair to declare, and not only did we have to state when, we had to give full details of the repair: what was done, who did it, details of city permits.
Consumer protection is not necessarily the same in every state, but California buyers can feel confident about what they are buying. Imagine that happening here. Given the enormous cost of a house, buyers in New Zealand ought to expect that the person in the best position to know the home they are buying – the seller – is the one to have made a binding disclosure.
A: Gosh – for a couple of reasons:
• A 6 per cent commission is way higher than here. But you get much more for your money, with the staging, all-day open homes and so on.
• The buyer protection in California is impressive.
And given that everyone who is a seller must also at some time be a buyer, it sounds great.
Q: Regarding real estate commissions, I am surprised that more vendors do not insist on altering an agent's listing agreement to record that commissions are only payable on actual settlement of a transaction, and not when the contract is declared unconditional by the parties.
It is not unusual for contracts not to settle, in spite of being unconditional. I do not support the practice of agents deducting commissions from deposits paid into their trust accounts at the stage agreements become unconditional.
I have sold numerous properties over the last 30 years. I always insist that listing agreements are altered to record that commissions are only payable on actual settlement taking place, and that all deposits are paid into the trust account of the vendor's solicitor.
Agents dislike this for obvious reasons, but I have not had one agent refuse to alter their listing agreement.
A: Sounds reasonable to me. It's one of those situations where, if something does happen to go wrong "twixt the cup and the lip", you'll be glad you insisted.
More on buying and selling houses next week. It's a topic that won't die.
Q: Just a comment on your term deposit example in the first Q&A last week about inflation.
You said, "For example, you might put $1000 into a one-year term deposit that pays 2 per cent. At the end of the year you'll have $1020.
But if inflation is the current 3.3 per cent, when you go shopping the goods that cost you $1000 a year ago now cost you $1033. You're short $13."
The $20 gain should actually be less, as income tax has not been factored in. This would make the investment even more marginal.
With inflation at, say, 3 per cent nowadays, deposit interest rates would need to be nearer 4 per cent to break even. Therefore for probably years to come term deposits in Aotearoa will remain a distant memory.
Were the official cash rate (OCR) to be raised to make 4 per cent on term deposits more likely, then those having mortgages would be in a disastrous situation – something no rational government would accommodate.
So the bitter reality of having minimal OCR rates has been a huge influx of dosh into the property market, whereas folks like me who used to rely upon term deposits to augment my superannuation have been thrown under the bus.
Placing one's savings into investment funds is certainly commendable until term deposits can raise decent returns (after tax and inflation) – although the fees and risk are inevitably higher.
A: You're quite right, of course. To keep it simple, I should have said the term deposit pays 2 per cent after tax.
The fact is that tax on term deposits makes it even harder for investors to come out ahead if there's inflation happening.
But your forecast of dire results if mortgage interest rates rise is perhaps a little exaggerated. These days, when banks size up whether a customer can have a mortgage, they check to see if they could manage if interest rose several percentage points. People with mortgages wouldn't like rate rises, of course. But most of them should be able to cope.
On putting savings in managed funds, last week I was saying you have to go with higher-risk funds if you want to stay ahead of increasing inflation. But if you are talking about money you expect to spend within the next two or three years, inflation is not a big deal. In that case, I suggest using a cash fund, which won't be much riskier than term deposits.
- Mary Holm, ONZM, 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 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. 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.
OPINION: Turns out the human brain is not well evolved to handle money.