Q: I am 29 years old and working in the Middle East — not really because I want to but because I need to, to get ahead financially.
I have $10,000 in a New Zealand savings account, £6000 in a British bank account and another £10,000 in a Middle Eastern bank account that earns no interest. I also have about $10,000 in KiwiSaver and no debts.
I plan to return to New Zealand in 2016 to buy a house and settle down. How should I structure my money to earn a reasonable and safe return, and which country might be the best place?
What holds me back from transferring the money to New Zealand is that the New Zealand dollar is so high and the pound predicted to go higher, along with interest rates.
I enjoy reading your column every week — goes well with baklava. Go the Hurricanes!
A: Clearly you're still a Kiwi at heart. And we even have baklava here awaiting your return.
I can understand your reluctance to move money back to New Zealand, with our dollar widely regarded as being high. If it loses value between now and 2016, you'll be able to buy more kiwi dollars with your pounds when you return.
The trouble is that people have been saying that sort of thing for several years now and the kiwi dollar has just kept climbing. If that continues, come 2016 you'll wish you had moved the money here now.
Foreign exchange rates are affected by many factors and are impossible to forecast.
In light of that, it might be best to move a third of your money to New Zealand now, a third in a year and a third in 2016. That way you'll get what turns out to be a good exchange rate on at least some of your money. It spreads your risk.
The other issue is interest rates. While they might be predicted to rise elsewhere, the same applies to New Zealand, and we're starting at a higher level here. Because of that, maybe you should move somewhat more money to New Zealand now and less later.
On type of investments, I would stick with bank term deposits. You'll be spending the money in a couple of years, so you don't want volatility.
Q: There is another danger in investing money in Fiji.
Fiji already has restrictions on transferring money out of the country. I am not sure whether your correspondent would be able to get his money back now. And I do think that they will tighten their restrictions in the future.
A: You're referring to last week's Q&A in which a young man was thinking of investing his savings in Fiji. I said he needed to understand the risk of the investment and also the risk of currency movements.
Your point is also a good one. I don't know about Fiji's rules, but it's always wise to check on any country's restrictions before sending money.
However, I hope this and the previous Q&A don't give the impression that it's not wise to invest overseas. On the contrary, it's a great idea for some of your long-term savings. It spreads your risk hugely in two ways:
• You can invest in industries not represented in the New Zealand sharemarket.
• You're protected against a downturn in the New Zealand economy, and in particular an agricultural or natural disaster.
The easiest way to invest offshore is through a New Zealand-run managed fund that holds overseas assets — such as many KiwiSaver funds. The fund manager deals with restrictions on transferring money, paying foreign tax and so on. And it's less complicated for your estate when you die.
If you want to avoid currency risk, choose a fund that is fully hedged — which means that, in essence, it's insured against currency movements.
Keep in mind, though, that if you plan to spend some of your retirement savings on international travel or buying imported goods such as cars, electronic goods, appliances and so on, it's better to have some savings offshore without hedging.
That way, regardless of whether the kiwi dollar rises or falls, it won't affect the value of your overseas spending money.
What about imports? A fall in our dollar would push up the prices of imports, but you'll have more money to bring in from overseas to pay for them. And a rise in our dollar would push down the price of imports, so you won't mind too much if it also reduces the value of your overseas savings.
Confused? Basically, having some retirement savings offshore reduces your foreign exchange risk.
Paper war fears
Q: I am 60, my wife is 63. We are lucky enough to both be retired and living off moderate incomes and savings.
My wife worked for eight years in her native Aussie before we married. We have lived in New Zealand since then and raised a family. She has worked over all those years in New Zealand. She hasn't become a New Zealander.
We have heard that when she applies for New Zealand Super at 65 to prepare ourselves for a huge paper war. We understand that this paper war will also be an annual event? Hence we are starting now!
Do you have any information on what we can expect and what we could do to make this process straightforward and less complicated?
A: Your wife's situation is no different from that of all those New Zealanders who have lived in Australia — or in any other country — and apply for New Zealand Super.
Under the Social Security Act, anyone who gets a benefit or pension has to "take reasonable steps to apply for any overseas pension administered by or on behalf of the government of that country that they may be entitled to receive", says a Ministry of Social Development spokesperson.
If they do receive that benefit or pension, that's deducted from the amount the New Zealand Government pays them, so they are no better off. But New Zealand taxpayers are. For former Australian residents, it's also possible to accept the "Special Banking Option", whereby your Australian pension is effectively paid directly to the New Zealand Government and you receive the full rate of New Zealand Super.
The system seems reasonable to me. Why should someone who has lived in more than one country end up with more total government pensions than someone who has lived in just one country?
For those who have worked in Australia: "The ministry does screen applications to determine whether a person is asked to apply for the Australian Age Pension," says the spokesperson.
"People who are able to demonstrate that their time in Australia does not meet the Australian resident criteria will most likely not be required to test their entitlement."
Furthermore, "When we send the Australian Age Pension application pack to those people who meet the residency and work duration criteria, we invite them to check their income and assets against the level allowed by the Australian Government. This is information available on the CentreLink website."
This is because the Australian Age Pension, unlike New Zealand Super, is paid only to those on lower incomes and with relatively few assets.
"If the applicant thinks they will exceed the income and asset level, they are invited to come and discuss their circumstances with us. If there is evidence that they exceed the income and asset level we will defer the requirement to apply for an Australian Pension by 12 months, if the income threshold is exceeded, or 24 months, if the asset threshold is exceeded.
A longer deferral is given for assets because these are less likely to change."
Here's where your "annual event" comes in. "At the end of the deferral period, we will write to the client and ask them to demonstrate that their income or assets continue to exceed the Australian threshold," says the spokesperson. "If there has not been any significant change, the deferral will be renewed. If, however, the client now meets Australian income/asset criteria they will be asked to complete an application for the Australian Age Pension."
That's when the fun can begin. The current application form for the Australian Age Pension — which assesses the financial situation of you and your partner — is 27 pages.
However, says the spokesperson: "Often applicants are not required to answer all parts of the application, particularly if New Zealand Superannuation is their only source of income."
What can you do now about it? Firstly, relax. "Yes there is a bit to get organised but it doesn't have to be a 'war', and planning ahead helps makes things run a whole lot smoother," says the spokesperson. "In the event that they need to complete the necessary application forms, they will need to know the approximate dates for arrival in and departure from Australia, and also have up-to-date financial information."
He adds: "The ministry is always happy to help. You can freephone on 0800 552 002, Monday to Friday 8am-5pm or email us at firstname.lastname@example.org."
My tuppence worth: it seems the New Zealand Government does try to avoid making people apply for the Aussie pension unnecessarily. And if you do have to apply, it can't be all that bad. Easy for me to say? Not really. I've lived not only in Australia but also England and the US.
Private pension okay
Q: One of your recent letters said the writer had "both New Zealand Super and a pension, both approximately the same value".
How is that possible? I thought any overseas pension income had to be declared and deducted from New Zealand Super so that one's pension could never exceed what they got here.
A: If the pension is "administered by or on behalf of" an overseas government, as explained above, it is indeed deducted from New Zealand Super. But if someone receives a private pension, such as from a workplace super scheme in New Zealand or overseas, they get it in addition to New Zealand Super.
Car in the picture
Q: I'm the guy in your column recently who plans to withdraw $20,000 from KiwiSaver to buy a new car. Thanks for answering my question. I had a good laugh over the response it generated last week.
Actually, having a new, fuel-efficient car covered by a good warranty is part of my retirement plan. My plan also includes things like being debt-free, having multiple streams of income, good insurance cover including medical (if you don't think medical is worth it, just wait till you or your partner gets sick) and obviously having sufficient funds to see me through the next 20-30 years (God willing).
KiwiSaver is a small part of the picture and I have sufficient funds to buy a new car every other year if I wanted to. All this just goes to show the perils of giving financial advice without having all the facts.
There now KiwiSaver Kickers — a whole column with KiwiSaver mentioned only in passing!
• 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.