Q: I have been following the new car discussion with interest. I would like to suggest the following thoughts to purchasers of a new car.
Think about your existing car. How old was it when you bought it? How much did you pay? And how long have you had it? Why are you replacing it?
In my case it was nine years old, $5,500, I kept it 13 years and replaced it because it was no longer getting a warrant without major work for structural rust.
I weighed up my requirements and how much I was willing to spend to replace it. I was looking at spending under $10,000 on a low mileage, late model, second-hand car when I started to think how long will I keep it for? Since I am planning on at least 10 years, I decided to get a new car. Not a top of the line model but a baseline model that meets all my needs. The price difference from the base model to the next step up was more than I was willing to pay.
Money well spent? I think so with the new warranties, fuel consumption and safety features that are the same as the top models. I don't need the stereo and phone controls on my steering wheel, and while it would be nice if the mirrors and door handles were the same colour as the paint, the black matches quite nicely.
For me, getting a new car was better, but if you are changing cars every few years maybe second-hand cars are the better option so it doesn't cost as much. And if you have learner drivers, a second-hand car to learn in where it doesn't matter if they scratch and dent it is better.
Before making the big purchase, check the change in premium with your insurance company and if there are any age limitations.
A: Thanks for what sounds like a lot of common sense to me. But I have no expertise in this area, so I went to someone who does, Clive Matthew-Wilson, editor of the car review website dogandlemon.com. And I'm afraid he's not too impressed by your buy-new attitude.
"You lose about 40 per cent or so to depreciation in the first year, so your $30,000 car is an $18,000 car one year later. After that, depreciation is about 10-20 per cent a year," he says. "Therefore, if you want the convenience of a new car, the smart thing to do is to buy a one- or two-year-old version of a current model. That way, there will still be some warranty left, but the depreciation monster will have taken its biggest bite."
Typically, a new car warranty lasts three years or 100,000km, whichever comes first. And a standard warranty — as opposed to an extended one — is usually transferable to a new owner, says Matthew-Wilson.
If you can't transfer a warranty, "various insurance companies offer comprehensive mechanical insurance", he says. "Many people are unaware that the warranty they get from a used car dealer is generally simply an insurance policy, purchased by the dealer on their behalf. He generally gets a commission on this, by the way. However, with any mechanical insurance, you need to make sure the policy covers all things that are likely to go wrong."
Matthew-Wilson adds that, if you're buying a car for private use, "the Consumer Guarantees Act overrides most written exclusions in any warranty document. Instead, the act requires that a vehicle, or a part of a vehicle, has to be 'fit for all the purposes it would normally be used for'. So, on a relatively new vehicle, the fact that it is out of warranty doesn't mean the act no longer applies."
For more on buying a car from a dealer, see cab.org.nz, which is a page on the Citizens Advice Bureau website.
Other comments from Matthew-Wilson: "I think, in this day and age, you shouldn't plan for 10 years ahead unless you're retiring or close to retiring. This is particularly true if you're thinking of buying a European car. Cars in Europe are like iPhones: no one expects them to be reliable once they leave warranty. That doesn't bother the average car buyer in Europe, because they will have bought a new model by the time the old model starts disintegrating.
"However, trusting that a European model will give reliable transport for 10 years is like trusting a politician to keep his promises for the next 10 years. Good luck."
He adds, "Also, don't become fixated with fuel economy. Depreciation and maintenance costs are at least as important as fuel economy." For example, diesel-powered cars are more expensive to buy, and "multiple studies have concluded that the average driver is actually worse off financially with a diesel vehicle. Diesels really only start to make sense for people travelling more than 15,000km a year."
Overall, says Matthew-Wilson: "If you're buying a new or nearly-new vehicle, we recommend something from Japan or Korea. If you're buying a vehicle more than five years old, we recommend you buy something inane and boring, such as a Toyota Corolla. In the budget vehicle stakes, reliability beats style every time."
Finally, a comment from the man who started this stream of Q&As with a letter about how it's better not to buy a new car: "I am chuffed to see the not too serious reaction to the new car story. I was worried there might be an element of enragement and scorn. We blokes take our wheels and their throaty sounds very seriously!"
Enragement and scorn in this column? Never!
Q: You receive a number of questions regarding KiwiSaver and risk. I have yet to see anyone mention that you can spread your risk with KiwiSaver.
I am with ANZ, and 50 per cent of my contributions go into a balanced fund and 50 per cent into a growth fund. I am a little risk-averse so felt this was best for me. I suspect most people are not aware that this option is available.
A: You're right — most KiwiSaver providers will let you contribute to more than one fund.
As it happens, ANZ offers a balanced growth fund, with risk halfway between your two funds, so you could achieve much the same total results by investing solely in that fund.
Still, the way you're doing it will let you see how the two funds perform. The balanced fund will tend to have lower highs and smaller losses than the growth fund, with probably a lower average return over the long term. Watching that might lead you to move more of your money into one or other fund over time, as you learn more about your risk tolerance.
Separation of Super
Q: Are my KiwiSaver contributions considered "private" superannuation? That is, my NZ government pension will not be reduced as a result of having additional KiwiSaver funds?
A: That's correct — although there's no knowing what a future Government might do. But it's hard to imagine a Government reducing NZ Super for people in KiwiSaver, but not for those with rental property or other savings (unless KiwiSaver is made compulsory, when we'd have a whole new ball game).
That leaves us with the option of not saving at all if we fear our savings could reduce our future NZ Super. But that would be silly. Every Government will surely always make sure savers are better off than non-savers in retirement. Otherwise, think of the message to younger people!
Q: I know you hate this subject, so I'll be very surprised if you respond.
Recently, you said you had lived in Australia, England and the US. If you worked in those countries, it's likely you contributed to a social security scheme, either compulsory or voluntary.
When the time comes for you to receive NZ Super and you find that these pensions are deducted, you may feel differently about receiving "only" the normal rate.
You could also then be asked, as others are, because you spent substantial time in those other countries, "why should you receive the same as those who have worked, paid tax and contributed to New Zealand for all their working lives?"
New Zealand thinks it has sole right to confiscate the contributory pensions of those who have worked in other countries. Here is an example: there is no social contract between New Zealand and Germany, so our Government simply confiscates a German pension paid into this country by reducing the NZ Super payment by the equivalent amount.
In contrast, Germany does not bargain with the contributions of those who have worked there by saying "if you are entitled to a pension in your own country, then your German pension will be reduced accordingly". They respect the property and contributions of those who have worked and contributed in their country.
As you may have guessed, I am so affected. I have spent the majority of my life here, including 30 of my 45 years' "working" time. I do not expect the full NZ pension, but a proportionate two-thirds would be nice, and the good folks at MSD could leave my contributions to a German pension alone as well.
Thank you for listening.
A: Happy to listen, although I did cut out some of your detail about the German situation, as I'm not sure it will hold many readers spellbound.
On hating the subject, you must be referring to my saying, some time back, that I didn't want to go deeply into the way NZ Super interacts with other countries' pensions. It can get horribly complex. I've tried before.
But yes, I did work in those three countries, and I expect to fill out lots of forms when I apply for NZ Super, and to have any pensions from those countries effectively deducted from my NZ Super.
And if anyone asks me your question — "Why should you receive the same as those who have worked, paid tax and contributed to New Zealand for all their working lives?" — I'll reply that I'm not getting the same. The other countries where I've also worked and paid taxes are helping to fund my retirement.
I should acknowledge that I've known about this for years. I do feel sorry for people who don't realise the situation until they're about to retire, and find their expected retirement income slashed — although to some extent people must take responsibility for understanding their own financial position.
Your proposal — to give you NZ Super proportionate to how much of your working life you've been in this country and also receive a foreign pension — is one way to approach the problem. But the current approach is probably fairer.
As Lindsay Meehan of the Ministry of Social Development puts it: "The intent behind the policy is to ensure New Zealanders who have spent their whole life working and paying taxes here are not disadvantaged when compared with others who have worked overseas or immigrants to New Zealand who have entitlements to overseas state pensions."
For more information on all this, see msd.gov.nz.
• Mary Holm is a freelance journalist, member of the Financial Markets Authority board, director of the Banking Ombudsman Scheme, seminar presenter and bestselling author on personal finance. 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 email@example.com or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.