Shelley Hanna: Job loss and KiwiSaver

QUESTION: Several months ago I became redundant from my job and have not been able to find another suitable position since. However, I am still able to make lump sum payments to my KiwiSaver. To date, I have been able to put in enough funds to qualify for the Government tax credits for the current year and am contemplating adding more lump sum payments from time to time, over and above the necessary $1042 pa. In the light of the economic downturn in Europe and NZ, do you think it would be prudent to add to my KiwiSaver account in this way, or do you think it would be better to put any extra savings I have on an interest-bearing account with my bank? I don't qualify for NZ Super for another six years.

ANSWER: First of all, well done for continuing with your KiwiSaver contributions despite losing your job. For every dollar you are contributing at the moment (up to $1042 pa.) you will get 50c from the Government.

The global financial crisis has had a negative impact on most of the higher risk KiwiSaver schemes and volatility is likely to continue for some time.

Even though it is the one question that you really would like answered, it is impossible for me to predict whether your scheme will do better than bank deposits over the next six years. Many fund managers aim to achieve "better than bank" returns, but always with the proviso that they may not succeed. With a timeframe of six years there is a reasonable expectation that it may, but looking at the past six years I wouldn't stick my neck on the block on this one.

Putting aside the uncertainty around returns (and not knowing your risk profile), there are other reasons that a person might consider putting additional funds into their KiwiSaver scheme, over and above the minimum to get the Government top-up. Compared with other managed funds, the fees on KiwiSaver are generally lower because they are closely monitored by the regulators and they have economies of scale. So an investor may choose to consolidate several investments into their KiwiSaver.

Your KiwiSaver is locked in to age 65, except in certain situations. For some people this may be an advantage. Funds you can access are more likely to be spent. We all have our weak points and clever marketing people are always looking for ways to part us from our savings.

Also, many people your age have sons and daughters who come to them for loans. If your savings are locked away, it is easier to say no. On the other hand, you may prefer to have the extra funds accessible for yourself or your family, in which case you shouldn't lock them up in your KiwiSaver.

There are some who fear that building up a large balance in KiwiSaver may disadvantage them when they apply for NZ Super, in case the Government introduces income or asset testing. I sent enquiries to David Cunliffe and Bill English on this point on November 21. David Cunliffe answered promptly saying in part:

"No. Labour's policy is to guarantee NZ Super at 66 per cent of the average wage. Universal Kiwisaver will not change this. Kiwisaver will be available from 65 years as now and can be accessed for first home mortgages and hardship as now."

By deadline I had not yet had an answer from our Minister of Finance, although the ministerial assistant sent me a routine response that my enquiry had been forwarded. I guess he's had a busy week. It's an issue I would like to address in more detail in the near future so I look forward to his reply.

Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 8703838. The information contained in this article is of a general nature and is not intended to provide specific or personalised advice. If readers have any KiwiSaver questions they would like answered please go to www.peak.net.nz or email shelley.hanna@peak.net.nz.