Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance
OPINION
Q: When I was asking an ANZ KiwiSaver specialist adviser what happens to my KiwiSaver funds on my death, they told me a disturbing story of how my wife can’t simply access my KiwiSaver.
I was given an example of how a husband’s ANZ KiwiSaver funds are being held in a solicitor’s trust account and denied to his wife for over a year so far, due to time taken to obtain probate, despite his very normal and uncontested will leaving everything to her.
I suspect many a retired husband is looking after the family capital in KiwiSaver in his own name, expecting that the conditions of his will would release the money soon after his death. What advice would you give to prevent spouses being denied access to possibly the only funds they have?
A: You may well be right about people’s expectations. And this issue doesn’t apply just to retired people, but everyone at every age. Nor does it apply only to KiwiSaver investments. Thanks for raising an important point.
Firstly, what happens to someone’s KiwiSaver account when they die?
“As a KiwiSaver account is held individually, it becomes part of a member’s estate after their passing (in the same way as other assets do),” says an ANZ spokesman.
“How the member’s KiwiSaver savings can be subsequently distributed depends on the value of the KiwiSaver account, and then if there is a will in place.
“If under $15,000, an authorised person such as the surviving partner, children or someone caring for their children, can apply for the funds without requiring probate or letters of administration.
“If over $15,000, the route to getting access to the savings takes longer. If there is a will, a grant of probate is required (a document issued by the High Court certifying the will’s validity and confirming the appointment of an executor to deal with the deceased’s estate in line with the will),” says the spokesman.
“Ideally the will should clearly say who should receive the assets, like the KiwiSaver savings, and provide clear instructions for distributing the assets.
“If there is no will, ‘letters of administration’ are required, which appoint an administrator to deal with the deceased’s estate according to the rules of intestacy (when there is no will).”
He adds that ANZ Investments has not heard of cases where the investor’s funds have been held for an extended period. “Each case will be fact-specific, but for various reasons probate may take time to obtain e.g. issues with proving the will, the court process or volumes. Once probate is granted solicitors may hold on to funds for a period of time, e.g. six months, in case any other legal claims may arise on the deceased estate. There’s a section in the Administration Act 1969, s47, that relates to this.”
There’s a clear message here. I suggest every couple reading this talks today about how each of them would cope financially if the other person dies. Ideally, each partner has enough money in their own name to manage expenses while the estate is being sorted.
What about joint accounts? “If a deceased customer had a joint personal account, the account will usually be transferred into the remaining account holder’s name, or names if there is more than one. This step will be more complicated if there is debt (particularly a loan secured by a mortgage over a property),” says the Banking Ombudsman Scheme.
That sounds okay unless the joint account includes a mortgage. But it would still be best to have some cash held separately by each partner, to keep things simple immediately after a death.
Note that even if a KiwiSaver member is younger than 65 when they die, the money in their account will be available for their heirs to spend as soon as they get it. But, as we’ve seen, that might take quite a few months.
Q: My husband has just died. Once probate is through, do I have to liquidate his KiwiSaver, or am I able to leave it as is, intact? I would be able to continue to pay into the fund.
A: Sorry to read your sad news. It sounds as if you don’t need the money straight away, which is good. But yes, your husband’s KiwiSaver account will have to be closed.
However, there’s nothing to stop you opening your own KiwiSaver account and putting the money into it – or adding to your KiwiSaver if you already have one. Anyone can open an account at any age, and you can then contribute – or not – in any way that suits you. If you’re under 65, each year the Government will put in $1 for every $2 you put in, up to a maximum of $521 if you contribute $1042 or more.
Q: I wonder if other readers are having the same experience as me. Since joining KiwiSaver 17 years ago, I’ve been religiously contributing $20 a week to get the $10 Government contribution, and my savings have grown steadily.
But when I look at the graph which shows the yearly amounts in my fund since I changed provider to Booster in 2012, it shows no sign of the upward curve which we’re supposed to see, rather just a flat climb.
I’m in the high growth fund. But it shouldn’t matter, right? Whatever fund you are in should have an upward curve, albeit more gradual if you’re in a conservative fund.
I understand there will be good years and bad years, but surely over 17 years I could expect to see a snowballing, accelerating rate of savings? Which leads me to wonder whether I’m being ripped off.
A: You’re right. Over the long run we expect the growth of a KiwiSaver fund balance – or any other similar investment – to get faster and faster, because of compounding returns. Each year you benefit from not just returns made on the fund’s investments, but also returns on the retained earnings on the previous years’ investments.
The return you made back in your first year in KiwiSaver has since been reinvested 16 times, growing larger each year – except in loss years, but they’re not very common.
So, theoretically, you should see a curve that gets steeper and steeper. That’s especially true in an investment in which you’re making regular contributions. And yes, in a higher-risk fund the slope should be steeper than in a conservative fund, because of the higher average returns.
However, it can take a long time for the increasing steepness to become obvious. Higher-risk funds are more volatile, and yours is no exception. The Smart Investor tool on sorted.org.nz tells us that your fund’s returns since 2015 have been: 13.87, 1.77, 10.65, 7.68, 7.71, minus 3.73, 31.55, 4.56, minus 3.84 and 16.46%. All over the place. And, the tool shows us, average returns on all KiwiSaver aggressive funds have been similarly wobbly.
That can certainly muck up a curve.
But hang about, and by the time another 17 years have passed you’ll will probably see increasing steepness, or at least sort of.
Note, though, that Smart Investor tells us the fees on your fund are 1.65%, compared with 1.03% on the average aggressive KiwiSaver fund. That makes a difference over time. I would move to a lower-fee fund.
Q: I cannot see any major advantages in opening KiwiSaver accounts for grandchildren.
It is a very long-term view, and basically money locked in with fishhooks.
I think a better, more flexible idea is to let compound interest show its true worth. Investing $15,000 for our youngest grandchild now at 3 years old will be $36,000 (at 5%) when she is 21 years old, which is the birthday we have chosen for the gift.
To avoid all the complications, and many legal issues, the money is to be held, on mutual trust, by our granddaughter’s parents. When she reaches 21 years, she can choose exactly what to do with a surprise present. Maybe more education, maybe a bit of travel, maybe to help with a deposit – she can choose.
A: You’re right that a non-KiwiSaver investment for a grandchild has the advantage of being available for any spending, whereas, in most circumstances, KiwiSaver can be spent only on a first home or in retirement.
Some people like that restriction, though. Who knows what an angelic 3-year-old will be like at 21? She may blow the lot on stuff you have no desire to fund.
In either type of investment, the money will grow with compounding interest. But in KiwiSaver, that can be boosted when the child reaches 18 if someone – they, their parents or you perhaps – puts in $20 a week or $1042 a year, to get the maximum Government contribution, as described in today’s second Q&A.
Also, if the young person works – part-time or full-time – after 18, and they contribute to their KiwiSaver account, their employer will also contribute. And the child is then set up with, hopefully, a lifetime savings habit.
One more comment: If the young person doesn’t ever buy a first home, KiwiSaver is certainly a very long-term prospect. You’re highly unlikely to be around when they turn 65 and start spending the money, but I bet they will be grateful you got the ball rolling all those years ago. Compounding is powerful over 62 years.
Q: I noted with interest your recent comments about the person who inherited a house down south. The whole question about whether to rent or sell an inherited property is a common scenario and is worthy of discussion.
I agree the healthy home standards have improved some rental houses. However, insulating a house does not make it warmer. The tenant may be unable to afford to heat it.
I also feel the IRD answer was out of context. Costs incurred before a house is rented out are not deductible. They are considered capital in nature. The IRD answer mostly referred to a house that was already being rented.
Perhaps you should also direct your “greedy and image comments” to the financial investment industry. Many involved in those industries live in the opposite of cold, damp houses on the back of average returns they pay to investors.
A: Gosh, that’s pretty negative, assuming a tenant won’t be able to heat their home enough to take advantage of insulation. Even if they have no heaters on, surely the heat from the sun coming through a window, and from cooking and so on would make the inside somewhat warmer than the outside air. And insulation would help to keep that warmth inside.
On the deductibility of the costs of upgrading a property, you’re right. In my question to Inland Revenue I didn’t specify that the house was not yet rented out, and I should have. Apologies. Says an IRD spokesperson: “For newly acquired property, generally the expenditure incurred to bring the property up to the Healthy Homes standards and suitable for its intended use as a rental property will form part of the acquisition cost of the property and will not be deductible.”
Please note that I have not said landlords are greedy. What I said two weeks ago, in response to a correspondent writing about the greedy landlord image, was: “If landlords don’t want to be called greedy, it would really help their image if they took pride in upgrading their properties to make their tenants’ lives better, rather than complaining about the costs. I should add that there are many landlords who do, indeed, like to treat their tenants well.”
I agree that people in the financial investment industry are also a mixed bag, with some caring more about investors than others.
It reminds me of a story, supposedly from the late 1800s in New York. Some visitors to the city were admiring the yachts of the richest Wall Street brokers, when one suddenly asked: “Where are the customers’ yachts?”
His question became the title of a successful book by Fred Schwed about Wall Street excesses, first published in 1940 and reprinted since.
* 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 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.'