Helen Twose: Saving is smart for beneficiaries

5:30 AM Tuesday Sep 11, 2012

Since launching a little more than five years ago two million New Zealanders have signed up for the retirement savings scheme KiwiSaver.

For many it will have been their first introduction to investment, one that comes with a fair smattering of industry jargon and a good deal more complexity than the "money under the mattress" approach to retirement saving.

Each week I'll aim to untangle the terminology, dispel the mystique and get straight answers to your KiwiSaver questions - big or small - with help from a panel of industry insiders.

My wife's brother is mentally ill and lives off a disability benefit.

However, he lives independently in rental accommodation. We have tried to get him into KiwiSaver (as our whole family is) but of course it's very difficult to convince him. The organisation that looks after his financial affairs, to my knowledge, hasn't really tried to help in this regard.

To me this seems like a no-brainer!

Even if he doesn't contribute it's still $1000 that he can use later in life and we would probably put money in on his behalf to obtain the government tax credit of $500 a year.

So I ask is there any way to sign him up, I guess for lack of a better phrase, without his consent?

He will be on a benefit for the rest of his life and it seems a great pity not to have some extra income when he reaches 65.

In short, no.

Unless you or someone else has power of attorney his signature will be required.

From a financial perspective there will be advantages in him joining, even if he chooses not to contribute.

However, there are non-financial considerations that need to be taken into account.

It is possible that the brother would prefer not to have the stress associated with investments and this added complication to his life.

One of the golden rules of investing is not to invest in something you do not understand or are not comfortable with.

Having said that, it is also possible that the brother is refusing to join simply because he still doesn't have an understanding of the scheme and so perhaps the key to progress is to identify what it is he is troubled about.

So someone, in a non-threatening way, should make sure that he is aware of the potential benefits.

These range from having that extra capital at retirement or even something as simple as being able to help with his own funeral costs.

It may also provide him with some (limited) financial protection against a change in government policy on welfare and funding the disabled.

* Michael Chamberlain, SuperLife principal

Has the government considered whether to allow KiwiSaver investors to split their investments between two (or maybe even more) fund managers?

Obviously this wouldn't be practicable for small amounts but once an individual's fund starts getting larger (say $50,000 or $100,000) it should be allowed (even encouraged).

As time goes on some people will have a lot of money tied up in one KiwiSaver basket.

I personally would like to be able to split my KiwiSaver savings between two or three managers to increase diversity and reduce risk of one fund failing.

If the funds are not to be guaranteed by the government why should the government be forcing us to have just one provider at a time?

It should not be administratively difficult to split funds between two or three providers especially where there is a substantial sum involved and the person has been with KiwiSaver for some time.

There has been little discussion to date about allowing KiwiSaver members to split their funds across more than one provider.

This probably isn't too surprising given KiwiSaver is still in its infancy, and much of the focus to date has been on educating people on the benefits of saving for their retirement and highlighting what they should look for when choosing a provider.

The question of splitting KiwiSaver accounts across multiple providers has not gained traction partly because most KiwiSaver providers offer a range of funds covering multiple asset classes that can provide sufficient diversification and accommodate investors of all ages, risk profiles and investment preferences.

The downside of having multiple providers is that it would result in increased costs - imagine the extra workload for employers and the IRD in allocating monthly KiwiSaver contributions across multiple providers, and reporting all that transaction activity in a consolidated report so that the member knows the status of his KiwiSaver account.

One of the features of KiwiSaver that has worked so well for members, employers and scheme providers is the role of Inland Revenue as the central administrator.

That function has been developed around members selecting one, not multiple KiwiSaver Scheme providers.

Lastly, it is worth remembering that the assets in your KiwiSaver account are held in trust by an independent trustee.

Performance of investment funds can obviously go up and down over time (and your choice of funds can influence this) but should a KiwiSaver provider itself go out of business, your funds are protected and you would be able to change provider.

* Carmel Fisher, Fisher Funds managing director

Because my wife and I are both over 65 and have been in KiwiSaver for five years we have now closed our ASB KiwiSaver accounts and received a final payment amount credited to our bank account.

They state in their covering letter that "we have calculated your full and final retirement savings in the ASB KiwiSaver Scheme" and that the amount paid "includes an adjustment for any final member tax credits that you have been entitled to".

I was therefore surprised that there was no detailed "final" statement of payments, investment income, tax credits, etc, for our accounts included with the covering letter as I would have thought these would have been required for us to check and for completion of our tax returns.

I have sent an email to ASB asking for this information and wonder if you can confirm if they are required to provide this to us under the terms of the KiwiSaver scheme.

All members receive a tax statement at the end of each March 31 financial year, detailing their share of the fund's taxable income and tax credits, and the portfolio investment entity (PIE) tax paid to Inland Revenue on their behalf.

This is usually sent out around May or June of each year.

If the member has provided the manager with their correct prescribed investor rate (PIR) for that financial year, then the PIE tax paid to Inland Revenue is full and final and the member is not required to include this income in their personal tax return.

* Blair Turnbull, ASB executive general manager of wealth and insurance

* Disclaimer: Information provided is stated accurately to the best of the adviser's knowledge at the time of publication. It is general in nature and should not be construed, or relied on, as a recommendation to invest in a particular financial product or class of financial product. Readers should seek independent financial advice specific to their situation before making an investment decision.

To have your KiwiSaver questions answered by the NZ Herald's panel of industry players email Helen Twose, helentwose@gmail.com.