Which KiwiSaver is right for me?

QUESTION:     I have always believed that, as a moderately risk-averse investor, it is best to invest in a “balanced” investment as such funds tend to perform well in the long term, so when I joined KiwiSaver at its inception I opted for a balanced portfolio.  My KiwiSaver provider - Gareth Morgan KiwiSaver (GMK) -provides detailed performance analyses and I note that conservative funds have fared much better than balanced funds.  As I am 62, there’s not all that long now for my balanced fund to start performing better, would it be better to transfer to the conservative fund?

ANSWER:         You say ‘in the long term’ and you are right, you can expect a balanced fund with more growth assets to perform better than a conservative fund over the long term.  But how do we define ‘long term’?  The benchmark used to be 5 years, but lately we have been seeing ‘10 years or more’ from some managers.  Let’s look at the fund you are in.

When you joined KiwiSaver you were 58 and still had 7 years to go to age 65.  According to the GMK website, their Balanced KiwiSaver “suits savers with 3 to 10 years to retirement. The portfolio holds no more than 70% in yield and growth shares, with the balance in cash, deposits, and fixed interest investments.”

With only 3 years to go, this is a good time to review your goals.  Do you plan to cash up your KiwiSaver when you turn 65 - or continue with it?  Fund managers expect many investors will continue with their schemes (no longer locked in) beyond age 65, withdrawing funds to meet their retirement needs.  So your timeframe may be longer than 3 years.

Did you complete a thorough risk assessment before you chose the Balanced fund?  You describe yourself as ‘moderately risk averse’ and yet you are in a fund which can hold up to 70% in shares. 

I have a problem with the terms commonly used to describe diversified portfolios:  conservative/ balanced/ aggressive.  It sounds more like a mental health checklist than accurate descriptions of risk categories.  If I had my way I would change them to ‘low risk/ medium risk/ high risk’.  I may be wrong in your case but I suspect many people choose ‘balanced’ simply because they prefer the name, without completing a risk assessment questionnaire. 

It is worth knowing that there are four KiwiSaver providers that give investors an alternative based on their age and timeframe – the so-called ‘life stages’ KiwiSaver funds.  These schemes reduce the weightings to growth assets like shares as the investor ages, so they don’t need to make the adjustment themselves.  You can find the names of the providers on the www.interest.co.nz website.

All Kiwisaver investors should be in an appropriate fund to match their risk profile and achieve their goals.  Investing is as much art as science and it may be helpful to get professional advice.  It is important not to chop and change between funds depending on the mood of financial markets and the performance of your fund.  Investor behaviour like this can have a greater negative impact on long term performance than anything else.  You should undertake a thorough review of your investment goals before making any changes.

As published in the Hawkes Bay Today 22 November 2011 

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.

Job loss and KiwiSaver contributions

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 p.a.  In the light of the economic downturn in both 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 6 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 p.a.) 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 6 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 6 years there is a reasonable expectation that it may, but looking at the past 6 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 both David Cunliffe and Bill English on this point on Monday 21 November.  David Cunliffe answered promptly saying in part:

"No. Labour's policy is to guarantee NZ Super at 66% 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.

As published in the Hawkes Bay Today 29 November 2011

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.

Is It Time To Jump Ship?

QUESTION:    My wife and I belong to two different KiwiSaver schemes.  Mine is an active growth fund with quite high fees while hers is a passive growth fund with lower fees.  We are self employed and contribute $100 each month.  My scheme has done much better than hers – it’s worth $11,300 compared to hers at $9,750.  Should she change to a better performing fund?

Answer:  There may be several reasons to change schemes, and performance is only one of them.  There are other important issues such as investing philosophy, fees, and communication. 

First, the facts.  If you have been a member since inception, you will have contributed $5100 yourself and received $5171 in Government contributions – a total of $10,271. 

Comparing that figure with the current value, your scheme has gained 10% while your wife’s has lost 5%.  As you are both in growth funds, this variation is well within the range of expectations.  Growth funds have a larger percentage in shares which can fall by 20% or more.  Over the past 4 years we have experienced a global financial crisis which is still making its presence felt particularly in the US and Europe.  This has severely dented confidence in financial markets, and many funds have reported negative returns.  Four years is not a particularly long time period to compare performance between growth funds. 

Fees are often used as a tool of comparison between funds.  An active manager may charge higher fees (including a performance fee) but that fee might be justified by higher returns.  So basing your decision on fees alone is not enough.

Communication and access to information are also important.  Some investors like to get ‘under the bonnet’ of their scheme and know how and why the manager makes investment choices.  Other investors are not that interested in where their money is invested, but they still like to be able to check their current balance quickly and easily.  You don’t want a year to go by before you discover that you didn’t get all the tax credits that you were entitled to.  If you haven’t been checking your balance online at least every 6 months I suggest you begin doing so. 

There are dozens of providers and many funds to choose from.  The providers range from large banks to boutique fund managers.  The fund spectrum goes from low risk cash to high risk shares, from passive to active, hedged and unhedged.  There are also ethical or socially responsible funds available, as we discussed last month. 

Your question cannot be answered completely within in the scope of this column.  You may like to discuss the issues further. Only an Authorised Financial Adviser (AFA) can give advice on KiwiSaver. You can search for an AFA on the website of the Financial Markets Authority (FMA) at www.fma.govt.nz.  It also gives guidelines on choosing and working with an Adviser.  There are 23 AFAs in Hastings and 28 in Napier.  Not all will specialise in KiwiSaver but it is worth a phone call to find out. 

Published in the Hawkes Bay Today 8 November 2011 

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.

KiwiSaver Fees Not A Big Issue

QUESTION:  I am worried about the impact of fees on my KiwiSaver savings.  How do I find out what they are and the impact they are having on my scheme?

ANSWER:       KiwiSaver fees have been in the news lately.  You might have heard Green Party Co-Leader Russel Norman saying that people could save up to 40% or $64,000 in fees over the lifetime of their savings by investing in a lower cost fund.  Is this a pre-election attention-grabber?  Let’s take a closer look.

KiwiSaver fees are scrutinised by the regulators and are required to be ‘not unreasonable’.  Just the other day NZ Herald business writer (and Hawkes Bay local) David Chaplin analysed all fees and expenses as reported by providers and came up with the rather modest figure of 1.4% of funds under management as an industry average.   Contact me if you would like to see his figures.

To find out what fees are deducted from your fund, go to the investment statement and find the page entitled “What are the charges?”  Fees are taken out before the unit price is calculated.  You may also be paying an admin fee of around $3 per month and you will see this on your statement. 

If you want to find out how your fund compares with other funds, there is a great calculator on the ‘Sorted’ website.  You will pay lower fees if you are in a passive fund (which tracks an index) or a cash type fund.  Active funds - which rely on the skills of the manager to aim for higher returns – will generally charge higher fees.  

According to the ‘Sorted’ calculator, a person aged 40 earning $60,000 per year will pay between $3,460 and $16,900 in fees over 25 years.  

So where did Russel Norman get $64,000 from?  To achieve a saving of 40% or $64,000 (in today’s dollars) we’re talking total fees of $160,000 over the lifetime of your fund.  I struggled to get the Sorted calculator to spit out these numbers.  You would need to be a 20 year old earning $50,000 per annum contributing 8% of your salary into an active boutique fund for 45 years to pay fees of this magnitude.  You have to admit, a highly unlikely scenario. 

Are fees that important?  Compared with the considerable financial incentives to join KiwiSaver, the fees are inconsequential.  The attraction of KiwiSaver comes from the Government and employer top ups – a wage earner on $60,000 and contributing 2% is getting $1.43 for every dollar they contribute themselves. 

Performance is also more important than fees.  If your fund is doing better than most, you probably won’t complain about paying fees.  On the other hand, if you are in a fund with the lowest fees you won’t get any satisfaction if your fund is coming last in the performance race.

You are free to change managers, so if you are not satisfied with your fund you can switch.  That in itself should keep fund managers on their toes, and motivated to deliver value for money to investors.

Published in the Hawkes Bay Today 15 November 2011 

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.

Government has provided strong KiwiSaver incentives

QUESTION:    I haven’t joined KiwiSaver because I don’t trust the government.  Why should I join if they can keep changing the rules?

Answer:  KiwiSaver is governed by the KiwiSaver Act 2006.  Changes are not made lightly.  Some changes might improve the scheme while others might make it less attractive.  If you join and then decide it’s not for you, you can take a contributions holiday any time after twelve months (or earlier if you’re experiencing financial hardship).  The self-employed have even more flexibility and can stop and start as they wish.

The government has provided strong cash incentives for people to join and membership has exceeded their expectations.  Those savers who have been in KiwiSaver from the start have received up to $5168 from the government, if they have been saving at least $87 a month themselves.  That money from the government – the ‘kickstart’ and annual tax credits of up to $1042 - has gone into their KiwiSaver accounts.   In most cases, it will stay there increasing in value until they can access it at age 65 (or after 5 years if they joined after age 60).  Even though the tax credit has been reduced to $521 per year, KiwiSaver is still a generous scheme. 

There are now around 1.8 million New Zealanders signed up to KiwiSaver.  The largest group of KiwiSaver members is children (age 0 – 17) with nearly 300,000 (as at 31/3/2011 - according to the official KiwiSaver website).  So a large number of New Zealand parents and grandparents have made the decision on behalf of their children, to get the $1000 kickstart.  The second largest group is the 55+ age group, whose retirement is fast approaching. 

The ‘sorted’ website is a great place to start if you want to do some sums on KiwiSaver.  It has two very useful calculators:  one shows how much you will save if you join KiwiSaver and another one allows you to compare the fees of the various providers. 

Those who say that they don’t trust the government may think that their savings will somehow be taken away from them.  This will not happen.  The government does not have access to KiwiSaver accounts.  The government can put money in (via Inland Revenue) but they cannot take money out.  KiwiSaver is like a bank account in your own name, looked after by a fund manager and a trustee.  You choose the type of fund, from low risk to high.  KiwiSaver is highly regulated.  You will get regular statements from your fund manager.  You can sign up for regular informative email updates.  You can view your account balance online with a user name and password. 

If you are still not convinced, talk to friends who are in KiwiSaver and find out if they are happy with their savings.  They might just provide the motivation you need to sign up.

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.

Published in the 'Hawkes Bay Today' 1 November 2011

How Green Is Your KiwiSaver?

QUESTION: I have never felt comfortable with investment markets so I haven’t joined KiwiSaver.  I have been reading your column about the benefits of KiwiSaver and am having second thoughts.  Are there any socially responsible KiwiSaver funds available?

Answer:  Socially responsible investments have become more popular over the past 10 years with the increase in awareness of environmental and ethical issues.  Many leading fund managers in New Zealand are taking social responsibility more seriously, and apply a ‘green filter’ to the investment choices for their funds. 

You can go more green than this.  There are six socially responsible (or ethical) KiwiSaver funds listed on the website www.interest.co.nz.  You can find their investment statements online and read up on how and where they invest.  If you would like to discuss your options with someone, talk to an Authorised Financial Adviser. 

A socially responsible KiwiSaver fund will generally use a negative screening process to avoid investing in companies involved in weapons manufacture and sales, gambling, tobacco, the fur trade, pornography, cosmetics involving animal testing, and nuclear energy.  They may also screen out companies operating in countries known for human rights abuses including North Korea, Iran, Myanmar and parts of China including the Xinjiang and Tibetan regions; countries that support commercial whaling, and any country known to be developing weapons of mass destruction. 

Some socially responsible funds will apply the negative screen above but also go further with a positive screen.  They will invest only in companies that are making a positive contribution to environmental, social, humanitarian and sustainability issues.  For example, this positive screening process may allow investment in certain agricultural and forestry activities, products that reduce environmental damage, and renewable energy technologies.  They will also look for companies with good employment practices, effective anti-corruption controls, good environmental management and transparent communication.

Any KiwiSaver socially responsible fund will probably have a component of fixed interest and this may be invested in government bonds within the OECD, but not in undemocratic regimes or countries with a high degree of corruption. 

The jury is out as to whether socially responsible funds perform better or worse than mainstream funds, so don’t invest with the expectation that your fund will outperform all other funds.  A fund manager with an open mandate may be free to invest, say, in uranium mining if that sector is likely to outperform.  Your socially responsible fund has a smaller field of investments to choose from, so it may under perform at times and may also be more volatile. 

By now you will have realised that there is a lot involved in selecting a socially responsible or ethical investment.  You will need to do your homework and select the fund that you feel best matches your ethical convictions, while meeting your investment objectives as well.

As published in the Hawkes Bay Today 25 October 2011

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.

Free Cash for your First Home

QUESTION:  In your column last week you mentioned the First-Home Deposit Subsidy.  How do you qualify for that?

ANSWER:     This subsidy is run through Housing New Zealand for KiwiSaver members.  Anyone who has been contributing to KiwiSaver for three years or more, and wants to buy their first home, should find out if they qualify for the First-Home Deposit Subsidy. 

The First-Home Deposit Subsidy can also be accessed by KiwiSaver members who have owned a home before, but are in a financial position similar to someone who does not own a home. 

Although it is called a ‘Deposit Subsidy’ it is only paid out on settlement day, not before.  Talk to your bank and your solicitor to make sure you can get all the money you need before you sign a Sale and Purchase agreement.

If you apply for the Subsidy you are not obliged to withdraw your KiwiSaver contributions as well, although you may wish to.  This is a separate process, managed by the trustee of your KiwiSaver scheme.

The Subsidy is designed for people on modest incomes to help them buy modestly priced homes.  The income limit for one or two people is $100,000pa.  You can buy a house jointly with more than two people, in which case the income limit is $140,000.  The house should cost no more than $300,000 ($400,000 in Auckland, Wellington or Queenstown). 

For every full year you have contributed the minimum amount of your income or benefit, or a percentage of the minimum hourly wage if you are not in work (being 4% to 31 March 2009 and 2% thereafter) you should be entitled to $1000, up to a maximum of $5000 for 5 years’ contributions.  As KiwiSaver has only been going for just over 4 years, no-one will qualify for the full subsidy yet.  A couple who both qualify could get $8,000 towards their first home now, or $10,000 after 30 June 2012.  If you think you’ll qualify, it might be worth waiting until then. 

When you apply to Housing New Zealand you need to give them full information of your income, your KiwiSaver contributions, the income of anyone buying the house with you, and a copy of the sale and purchase agreement.  Allow at least 4 weeks for the application to be processed.

Does the Subsidy have to be repaid?  Only if you live in the house for less than 6 months.  Otherwise it is yours to keep.  So it is a generous subsidy and a good incentive particularly for younger people to join KiwiSaver. 

As published in the Hawkes Bay Today 18 October 2011.

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.

KiwiSaver Help To Buy A Home

QUESTION:  My wife and I joined KiwiSaver in 2007.  Can we cash up our savings to buy our first home?

ANSWER:   Yes you probably will be eligible to withdraw some of your savings, as you have been a member for more than 3 years.  Most if not all KiwiSaver providers will allow their members to make a withdrawal to buy their first home.

Assuming you qualify, you (and your wife) should be able to withdraw all your own contributions and your employer contributions.  However, you can’t withdraw any Government contributions – that includes the $1000 ‘kickstart’ and the annual member tax credits.  You can continue contributing to your KiwiSaver after you have bought the house, or you can apply for a contributions holiday if money is very tight.

The home you intend purchasing must be for you to live in; it can’t be a rental or investment property.  

Your KiwiSaver provider will have a First Home Withdrawal Application Form for you to fill out.  The trustee of the scheme will then consider your request. 

Don’t expect the funds to turn up in your own bank account – they will be paid to your solicitor’s trust account to await settlement.  You will need to provide information from your solicitor including a copy of the sale and purchase agreement and confirmation that the agreement is unconditional.  If for any reason you do not go ahead with the sale the money will need to be returned to your KiwiSaver account.  Involve your solicitor at an early stage, before you sign a sale and purchase agreement.

You may also qualify for the First-Home Deposit Subsidy administered by Housing New Zealand.  This is worth $1000 for each year you have been contributing the minimum percentage or more to KiwiSaver (up to a maximum of $5000 for 5 years’ contributions).  If you live in the house for less than 6 months you will have to repay the subsidy, otherwise it is yours to keep. 

Read the useful booklet from Housing New Zealand entitled “Buying Your First-Home with KiwiSaver”.

I assume you joined KiwiSaver with the intention of using some of your savings towards your first home, and are invested in a lower risk scheme?  I ask because with recent volatility some of the higher risk KiwiSaver funds have fallen 10% or more over the past 6 months. 

All KiwiSaver investors need to take into account both their risk tolerance and their timeframe when choosing what fund is right for them.  If you need help, talk to an authorised financial adviser.

As published in the Hawkes Bay Today 11 October 2011.

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.

What happens to KiwiSaver in separation?

QUESTION:  My partner and I have separated after more than three years of living together.  We don’t have any children.  We are dividing our assets between us without involving lawyers.  My husband says that his KiwiSaver can’t be divided as he can’t access it until he’s 65.  Is that correct?

ANSWER:  I am not qualified to give you legal advice, but as far as KiwiSaver is concerned it is an asset like any other savings and should be included in any division of your property.  KiwiSaver Scheme Rule 7 says the courts can make an order to release funds from a KiwiSaver scheme under section 31 of the Property (Relationships) Act 1976.

As the balances in KiwiSaver grow over coming years this will become more of an issue for couples separating, especially if one of them earns significantly more and has built up a larger account balance.

KiwiSaver started more than four years ago, so if your partner joined before you entered the relationship then his contributions from that time may be treated as separate property.  All contributions from the time you became a couple will be considered joint. 

I note that you do not intend to seek legal advice.  I suggest you reconsider.  It is best to get legal advice at the earliest stage of your separation so that you can be clear about what you are entitled to.  You can also have free joint counselling (through the Family Court).  Most people take legal advice and go on to resolve their property issues by negotiation and agreement. Only if agreement cannot be reached will an application be made to the Court. 

Once you have valued all your assets and deducted all your liabilities you can work out how to divide everything equally between you. 

A Court

order would be required to access some of your partner’s KiwiSaver account – you would file a claim with all supporting evidence to the Trustee of the fund.  However, it may be possible to leave your partner’s KiwiSaver scheme intact if you can get other assets of equal value.  

Even if your separation is amicable, independent legal advice will help you to achieve the best outcome.

As published in the Hawkes Bay Today 4 October 2011

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.

Mortgage no excuse not to join KiwiSaver

QUESTION:        Should I join KiwiSaver or pay off my mortgage first?

ANSWER:  Usually repaying debt takes precedence over savings.  This is because with debt there is a certainty of having to pay interest every day, while the return on investments can be uncertain.

However, with KiwiSaver there are more factors than just investment return to consider.  Let’s assume you are on a salary of $60,000 pa and contribute 2% of your income ($1200 pa) to a KiwiSaver account.  On top of your contributions you will also get 2% from your employer, plus $521 from the Government in ‘tax credits’ each year.  This equates to a return of 143%pa on your investment of $1200.  With mortgage rates starting at around 5.6% pa, this is considerably better than the ‘return’ you would get by putting an extra $1200 on your mortgage each year.

Those who say “I am not going to join KiwiSaver until I’ve paid off my mortgage” are missing out on years of Government contributions and employer contributions as well if they are in paid work.  And how many are actually putting that 2% onto their mortgage instead of into KiwiSaver?

I believe that many people use their mortgage obligations as an excuse not to sign up to KiwiSaver, when in fact they just haven’t got round to it.  Inertia is recognised as a major contributing factor to the behaviour of investors in schemes like KiwiSaver.  It works both ways - the majority of those who are automatically enrolled stay in but if they have to sign up, many don’t.  Evidence of this behaviour was confirmed by research into KiwiSaver membership commissioned by Inland Revenue in early 2010.

In a few cases it would make sense to deal with your mortgage first, for example if you are on such a high income that 2% would make a considerable difference to your mortgage balance and/or if your mortgage is very large and causing you a great deal of worry.

But if you have just been using your mortgage as an excuse not join KiwiSaver I suggest you reconsider. 

As published in the Hawkes Bay Today 27 September 2011

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.

Working Abroad Means No KiwiSaver

QUESTION:  My wife and I are New Zealanders who have been living and working in South America since 2001.  Our intention is to return and retire in NZ one day.  On a recent return visit we applied to join KiwiSaver but were summarily refused.  This does not seem fair.  If someone joined KiwiSaver and then left the country would they be kicked out of the scheme?

ANSWER:  The KiwiSaver scheme was set up by the KiwiSaver Act 2006 and is specifically designed for a person ‘normally living in New Zealand’ (with limited exceptions such as a government employee serving outside New Zealand).  KiwiSaver is really a ‘quid pro quo’ for New Zealand tax payers – most adults pay income tax and everyone pays GST (even babies by default when their parents buy food and nappies).  So the government is giving some of that money back as an incentive for New Zealanders to join the scheme.

The government contributions to KiwiSaver accounts are managed by Inland Revenue.  They will only make those payments if the account holder is currently a tax resident in New Zealand. 

I have consulted Inland Revenue on the question of eligibility.  According to their spokesperson ‘the scheme provider has a responsibility to determine eligibility at the time a person opts in through them’.

The scheme provider also ‘has a responsibility to determine the member's eligibility for entitlement to the member tax credit each time the annual claim is made.’  If someone joins KiwiSaver and then heads off overseas, once they become non tax residents in New Zealand they will not be entitled to the annual tax credits from the government (even if they continue to make ad hoc contributions to their KiwiSaver scheme). 

It appears the aim of the government is for KiwiSaver to become less of a drain on their coffers as time goes by.  In the recent Budget the government announced that from April 2013 employer contributions would be fully taxed.  The tax the government will receive from employer contributions for those on higher incomes will more than cover the tax credits they pay out to them, and will partially cover the cost of tax credits for lower income members.

The power of KiwiSaver comes from the combined income stream – individual contributions, the government’s kickstart and annual top ups and, for many people, the employer contributions as well.  It is an attractive scheme and I understand your regret that you are unable to participate while you are living and working abroad.

As published in the Hawkes Bay Today Tuesday 20 September 2011

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.

Considering the worth of holiday

QUESTION:        I joined KiwiSaver when the minimum was lowered to 2%.  My wife has just stopped working to have a baby and we are now living on one wage.   Should I put my contributions on hold?

Answer: You certainly can put your contributions on hold.  Anyone can apply for a ‘contributions holiday’ after they have been a member of KiwiSaver for at least 12 months.  The minimum was lowered from 4% to 2% in April 2009 so I am guessing that you have been a member for over two years.  (For those members who have been in KiwiSaver for less than 12 months, they can apply for a contributions holiday in the case of hardship).

Inland Revenue has a form KS6 which you will need to fill out (in hard copy or online) and return to them to process.  They will inform your employer.  You can suspend your contributions for any period from 3 months to 5 years.  You can also extend your contributions holiday if you need to at the end of the period that you choose.  Once you have started your contributions holiday, your employer will not be required to make any contributions.  You can still make voluntary contributions if you wish to. 

Adjusting to life on one wage is not easy, especially with all the costs of a new baby.  If your KiwiSaver contributions are making a difference, then taking a contributions holiday is a good idea. 

But if you are managing on one wage without going into debt, then I suggest you keep your KiwiSaver going.  For the purpose of this exercise I will assume you are earning $60,000 pa gross.  On this salary you will be contributing $100 to your KiwiSaver each month.  Can you adjust your household spending so you won’t miss that amount? 

Your employer will be contributing at least 2% as well, and you will also be entitled to $521 from the government each year in ‘tax credits’.  So by keeping your KiwiSaver going you will get $1721 from your employer and from the government over 12 months, which you won’t get if you take a contributions holiday for that period. 

I hope this information will help you come to a decision.  This is a special time in your lives and you want to enjoy it as much as possible.

As published in the Hawkes Bay Today 13 September 2011

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.

KiwiSaver still best option for self-employed

QUESTION: I understand the benefits to KiwiSaver are the combination of my input, government and employer contributions. I'm self employed so what happens to the employer contributions? Also I have a very seasonal income, and don't want to commit to regular investments. Maybe there are better options for me?

ANSWER:  For most self employed people KiwiSaver is still a generous Scheme even without employer contributions. This is because it is the only superannuation scheme in New Zealand to which the government makes financial contributions.

When KiwiSaver started 4 years ago employers were not required to make contributions.  Employers started contributing 1% of an employee’s salary from 1 April 2008 and 2% from April 2009. In this way, people on a regular wage do benefit from regular contributions from their employer.  However, every New Zealander over the age of 18 who contributes to a KiwiSaver account is entitled to the same top ups (or tax credits) from the government. 

Firstly, every new KiwiSaver will receive a $1000 ‘kickstart’ on signing up.  Then, those over 18 receive annual ‘tax credits’ - depending on how much they have contributed over each 12 month period.  Employer contributions do not count so the self employed are not disadvantaged. 

One of the advantages of being self employed is that you are not restricted to contributing 2% 4% or 8% of your gross salary – you can contribute any amount you choose, either by regular direct debit or an annual contribution.  Since your cashflow is irregular a lump sum may work best for you.  Others find a monthly direct debit is easier on the cashflow. 

There are many self employed people who contribute $1042 each year (or $87 per month) in order to get the maximum tax credit from the government.  From 1 July this year the government has lowered their maximum ‘tax credit’ contribution to $521 per annum. While you still need to contribute $1042 each year and be a member for the full 12 months to receive this full amount, this is still a worthwhile incentive.  For every month that you delay joining you will get about $43 less from the government.

For a new KiwiSaver investor starting on 1 July this year and contributing $1042 during the year, they will receive an equivalent return (before any investment return) of 50% with the government tax credit, plus the $1000 ‘kickstart’. 

Even without the employer contribution, it would be difficult to find a savings product providing a better outcome than this in the current climate. 

As published in the Hawkes Bay Today 6 September 2011

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.

Major illness grounds to access KiwiSaver

QUESTION: My husband has been diagnosed with a serious illness.  He has given up work.  Can he apply to cash up his KiwiSaver?

ANSWER:  I am very sorry to hear about your husband’s illness.  Yes he can apply for early payout of his KiwiSaver.  Being diagnosed with a serious illness (or becoming permanently disabled) is generally the only time you can apply to cash up your entire KiwiSaver account before the age of 65 - including the ‘kickstart’ and the member tax credits (government contributions). 

According to the KiwiSaver Act there has to be ‘serious and imminent risk of death’ or an illness that results in ‘being totally and permanently unable to engage in work they are suited for…”  Your husband’s KiwiSaver provider should have a standard claim form that he can fill out.  As he is not well I assume you will be helping him with this. 

The claim form requires detailed information to be provided and the claim process may be time consuming.  It will have to be signed by your husband in front of a Justice of the Peace or lawyer as a Statutory Declaration.  It may make things easier for you if you can find a JP who lives near you (look in the Yellow Pages) and may be willing to visit your husband at home.  Your husband’s doctor will also have to complete and sign the claim form, giving detailed medical information to show that his condition is serious.  The trustees of his KiwiSaver scheme will then assess the claim carefully before making their decision whether or not to repay - in part or in full.  Be aware that the whole claim process may take weeks or even months.  If you are struggling financially then I suggest you talk to WINZ about what benefits you may be entitled to, if you have not already done so.

This is a difficult time for both of you and I hope you are getting good support from family and friends.

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.

As published in the Hawkes Bay Today 30 August 2011