Flaw in system
Q. I wanted to let you and others know about a flaw in the KiwiSaver system that the Government should make changes to. I thought with your knowledge and connections you may be able to start some ripples.
I have been contributing to KiwiSaver from its beginning in 2007 and have kept 4 per cent contributions going from my salary each week.
My employer has fallen on hard times, she tells me, and is now holding on to my contributions as well as her employer contributions, not to mention unpaid tax since August of last year. Numerous letters, requests, emails have not improved the situation.
The tax department assures me they are pursuing her and trying to resolve the situation. However, I am the one missing out. Government contributions to my KiwiSaver account for the last year are half what I am due and I am missing out on growth of my investment because my contributions have not been forwarded.
I do not agree with the employer holding on to my contributions. I should be in control of depositing into my KiwiSaver account myself, and then at least I would be owed only her contributions. Your thoughts?
A. I'm not sure that ripples are what's needed, as much as oil on troubled waters. I can understand why you would rather make your own KiwiSaver contributions directly.
But I suspect most employees prefer to have their contributions taken out of their pay. And giving employees a choice would probably create an administrative nightmare.
So, assuming we're stuck with the system we have, what can be done for you and others in similar situations?
Firstly, let's look at how the system is supposed to work. "The employer has a legislative responsibility to make employee deductions from a member's salary or wages, and to make compulsory employer contributions at 2 per cent of their gross salary or wage," says Inland Revenue.
"Both employee and employer contributions must be accounted for on the employer's monthly schedule (EMS) and paid with their PAYE."
Broadly, there are two points at which this system can break down:
* The employer files an EMS but doesn't hand over the KiwiSaver money. In this situation, Inland Revenue pays your employee contributions to your provider anyway. That's because the Government guarantees that if KiwiSaver money is taken out of your pay, it will make it into your account. Inland Revenue then recovers the money from the employer - or at least tries to.
The Government also pays interest on your contributions, calculated from the 15th of the month in which the deductions were made - although currently the interest rate is only 1.59 per cent.
You may lose a little on this deal - if the 15th is later than when most deductions were actually made, and if the interest is less than you would have made in KiwiSaver. But sometimes you'll gain - especially when KiwiSaver returns are sagging. Either way, it will probably make little difference to your total long-term savings.
And you won't miss out on tax credit money. "When the delayed deductions are passed to your provider, IR will calculate whether you are entitled to any extra member tax credit as well and pay this at the same time," says the department.
So far so good. However, contributions from your employer are not government-guaranteed. While Inland Revenue will go after an employer, you won't get that money in your KiwiSaver account until they've received it.
Adds the department: "When or if the employer contributions are received, the member will receive interest on these from the first day of the month in which they are received by Inland Revenue." But you don't get interest on the period before the employer pays Inland Revenue. And if the money is never paid - which might happen, for example, if the employer goes into receivership - you miss out.
You'll still gain from being in KiwiSaver, because of the kick-start and tax credits. But it's not as good as it should be. That's life.
* The employer doesn't even file their EMS - which sounds like what has happened to you.
"Without an EMS we are unable to ascertain the amount of employee contributions deducted from an employee's wages, so are unable to pass these on to the provider," says Inland Revenue.
But it doesn't end there. Employers who don't meet their EMS obligations "are charged penalties and are followed up by Inland Revenue teams set up to specifically police KiwiSaver".
And once the EMS comes in, "employees will be credited with their contributions, plus interest, and with member tax credits from the date the deduction was first made".
In this situation, it might help if you show the department payslips listing your KiwiSaver deductions or any similar documents. Everyone should keep those.
In your particular case, you have given permission for me to pass your details on to Inland Revenue and they are making sure you get what is due to you.
Do let me know the outcome.
Others in a similar situation should ring Inland Revenue at 0800 549 472. While it might feel difficult to turn in your boss, it's your right to take part in KiwiSaver. And it doesn't say much for your employer if they won't contribute 2 per cent of your pay towards your financial wellbeing.
It would be understandable, though, if you don't do this until you have another job lined up or started. Inland Revenue will still chase up your former employer to make sure your KiwiSaver account is credited with at least your and the government's contributions, plus interest.
Q. Having followed closely the Feltex debacle over recent years, and the result of the court case - "Directors cleared" - I have become more frustrated and angry with the total lack of accountability of company directors in New Zealand.
It was with some satisfaction that I read the analysis and criticism by Brian Gaynor regarding this matter in last weekend's Herald.
Two questions arise:
* If top-quality directors can get away with it by escaping prosecution, why would anyone put money into the sharemarket? The directors blamed the auditors, the auditors blamed the directors.
* Over the years as a supporter of the sharemarket, are you going to warn readers of the irresponsibility of those who so willingly accept our money? NB: I have never had shares in Feltex (thank goodness).
A. Let's take your second question first. I'm happy to warn readers - and often do - that putting a large portion of their savings into any single share is highly risky. That share might perform badly for any number of reasons, including that the company documents didn't clearly disclose what was going on.
In reply to your first question, people might put money into shares - regardless of what some directors do - because a well-diversified portfolio or a share fund investment still tends to bring higher returns than other investments over the long term.
I don't like what happened at Feltex. While it's not clear whether the directors were at fault, it is clear that shareholders didn't receive information they should have been given.
The Capital Market Development Taskforce, of which I was a member, argued strongly for clearer and more accurate information about all types of investments.
The Government is working on making that happen, and it's also getting stroppier about taking to task companies that provide poor or misleading information. Even when the Government doesn't win - as in the Feltex case - the message still goes out that all directors must be vigilant about their duties to shareholders. I reckon things are looking up for ordinary investors.
Q. In one of your replies last weekend you stated, "nobody foresaw the big downturn".
May I respectfully point out to you that this is arrant nonsense. I've attached an academic paper, for example, that collates information from 12 economists (some of whom are very well known - Schiller, for example, is very famous in the US) who foresaw pretty much everything.
There is lots of other data out there which confirms this (just look at Nouriel Roubini's work).
I would hate to think that you would be one of the economic commentators hiding behind the "no one else saw it" excuse. It really won't wash.
A. Anyone who has worked in newspapers will have come across editors who ban certain expressions. One from my past was Stuart Forgotten-his-Surname at the Chicago Sun-Times, who got cross whenever any reporter wrote, "nobody knows".
"How can you be sure?" he would thunder.
And I suppose "Nobody foresaw" is much the same.
I should, of course, have said that the vast majority didn't foresee the downturn.
Of those who did, I would love to quote an old saying: "Economists have predicted nine of the last five recessions."
But something tells me that would make you as cross as Stuart in Chicago, so I won't. I'll accept your chiding - like a good girl - and promise to be more careful in future.
After all, the last time someone told me I had written "arrant nonsense" was in high school.
Q. There are just two words that describe where sensible baby-boomers will retire to: Queensland, Australia. After seven years we have no regrets and have so many benefits and advantages, why wouldn't you?
A. In last week's column, we weren't so much discussing where to retire, but where to buy property in the expectation that prices will grow faster than elsewhere, because lots of boomers retire there. I'm no expert on Queensland property. But I've heard too many sad stories to recommend anyone buy there as an investment. Still, it's good to know you are enjoying yourselves.
Q. I was interested to read your mention last week of the HSBC BRIC funds - which invest in shares in Brazil, Russia, India and China - so I went to the HSBC site for more information. The fund is only available to "HSBC Premier customers", defined as having "a minimum value of $500,000 in home loans with HSBC in New Zealand; and/or a minimum value of $100,000 in savings and investments with HSBC in New Zealand". Not an option for most.
A. I didn't realise that and it would have been helpful if HSBC had pointed it out when they emailed me about their funds. Nor were the eligibility rules apparent on HSBC's website - although obviously you found them when digging deeper. Sorry to have raised people's hopes.
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* Mary Holm is a freelance journalist, part-time university lecturer, consumer representative on the board of the Banking Ombudsman Scheme, seminar presenter and bestselling author on personal finance. Her website is www.maryholm.com. Her 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 firstname.lastname@example.org 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.
Flaw in system