Q: About two-and-a-half years ago I was enrolled in KiwiSaver at a place where I had just started work. I was past 65 at the time. I noticed it on my pay sheet, but didn't really think anything of it, thinking they knew what they were doing.
I did get notification later from ASB saying I had been accepted, so I thought, "That's good, I might be able to save something at last."
The total in my account has risen to just under $10,000, and I was looking forward to using that money when I finally decide to stop work, probably at 70.
However, I got a call from the IRD the other day saying it was cancelling my KiwiSaver because I was over 65 when I was enrolled. I took this news pretty hard and thought this was quite nasty of it. I asked if it could just remove the government's contributions and let me keep it going, but to no avail.
So it's now gone and I am going to receive about $3900. I just feel, "Why didn't it flag something at IRD when I was enrolled, instead of letting it go for so long?" I think it was pretty heartless of it to do this. What do you think Mary?
A: At first glance it does seem mean. And it's surprising that nobody out of your employer, your provider or Inland Revenue realised you were ineligible to join.
But mistakes happen, and I suppose a government department can't start bending the rules. That would encourage other people to try to enrol after they were 65, planning to say if they were caught that they were also enrolled "accidentally", and asking Inland Revenue to turn a blind eye. It could all get messy.
However, all is not lost. I suggest you put the $3900 in a savings account or, if you're happy with your KiwiSaver fund, ask ASB if you can put the money into a similar non-KiwiSaver fund. Then set up an automatic transfer from your bank account into that fund of the amount you've been contributing to KiwiSaver.
While you're at it, ask your employer if it will contribute to that fund for you. It's already been putting the money into KiwiSaver, so it might be willing to do that.
How cheeky are you? If Inland Revenue has given you $3900 out of the $10,000 balance, it may have also given back to your employer a similar amount - reflecting the contributions it made.
You might ask your boss if they could put that money into your new account. After all, it seems to me that your employer must take some of the blame for this situation.
With your own contributions and, hopefully, employer contributions, your account can still grow nicely until you retire, even without government contributions.
On the bright side, it makes a great naughty boy story: "I was expelled from KiwiSaver!"
Shares v property
Q: I am a 43-year-old Indian man who migrated to New Zealand in 2005. I have my own home and small investment property in Auckland. Back in India in my university days in 1989 I used to invest and trade in shares. However, I don't do that in the New Zealand sharemarket.
Since the property market in Auckland has gone so high, anticipated appreciation of investments is eaten up.
I believe investment in property is still a safe investment.
However, considering today's context there's not much left in returns. Do you reckon now it's time to take money out of the property market and put it into risky investments like shares?
A: First, property is also risky. In any investment in which prices can rise rapidly, prices can also fall. It happened to Auckland property just a few years back.
While shares are generally thought to be riskier than property, if you borrow to invest in property - which most people do - it can be riskier than a share investment with no borrowing.
I should qualify that, though, by saying that I'm talking about investing in shares my way - over long periods and holding lots of different shares or using a diversified share fund. If you're thinking of buying just a few shares and trading frequently, that's a high-risk game.
On to your question. While Auckland property prices have risen a lot lately, so have share prices. Where will either market go next? Lots of people have opinions, but nobody knows. What to do, then, if you're willing to take some risk with your investments?:
• Spread your money around - with some in property and some in shares. And preferably more than one property and many shares.
• Don't trade frequently. Trading expenses, including tax on your gains, eat into your profits. It's a rare, lucky person who does better trading than if they had bought and held.
• Commit to leaving your money in shares and/or property for at least 10 years, regardless of what the markets do. Too many people bail out of investments when markets fall - the very worst time to sell.
If you expect to spend your investment money in less than 10 years, it's safer to go with a lower-risk investment, such as high-quality corporate bonds, a bond fund or a balanced fund.
Q: I am a 34-year-old aspiring first-home buyer about to jump into the Auckland market.
I have $100,000 saved in my online "high-interest" bank account returning 4.6 per cent a year, and another $40,000 in my KiwiSaver account, a 100 per cent growth fund.
I noticed on my recent KiwiSaver quarterly statement (that I usually ignore and throw in the bin) the fund return was three times the return I received from my bank savings. Three times the return from less than half the funds invested! I was shocked (and pleased) that the KiwiSaver fund returned this amount.
This got me thinking.
As I have been a KiwiSaver member for just over three years, I am entitled to withdraw the employee and employer funds to buy my first home, and I have confirmed this with my provider - no problem there.
I am considering withdrawing all my savings from the online bank account, and transferring it to my KiwiSaver account for at least six months. I realise that the growth funds (primarily share investments) are on a good run at present and this could come to an end at any stage.
My primary concern is that if or when I manage to find a property, the KiwiSaver funds will not be released until there is a signed sales agreement in place.
But of course my mortgage provider will not approve a mortgage as I don't have access to the KiwiSaver funds for the 20 per cent deposit - a kind of a chicken and egg situation.
A: My primary concern is quite different. You're planning to put money you expect to spend soon in a fund invested mainly in shares. Yikes!
You acknowledge that the recent strong performance of shares could come to an end. But how would you feel if your money halved? I'm not saying that will happen. It could be the opposite. As I said in the previous Q&A, it's anyone's guess where a sharemarket will go in the short term. But - especially after a sustained period of growth like the one we've had - only a fool would rule out a plunge.
If you've decided not to buy a house for at least six months, I suggest you take two steps:
• Transfer your bank money from a savings account into a six-month term deposit, if you can get higher interest. Check www.interest.co.nz or www.depositrates.co.nz for which of the major banks is offering the best rate. When you're closer to buying, move back to a savings account.
• Move your KiwiSaver money into a low-risk fund. Your provider will probably offer one. If not, switch to another provider.
By all means feel good about how well your KiwiSaver account has done lately, but don't push your luck!
If you follow my suggestions, there won't be an issue about access to money for your 20 per cent house deposit, as you can use the bank money.
However, if you're a risk lover and decide to put the lot in KiwiSaver despite my warning, there shouldn't be a problem with the deposit anyway.
As you say, your KiwiSaver provider can't release your funds until you have an unconditional sales agreement. Even then, the money has to go into a solicitor's trust account until settlement date.
But in the meantime you can ask your provider for a letter saying how much money you will be able to withdraw for your first home. By the way, you might not realise that there are changes coming up soon to both aspects of KiwiSaver assistance for first home buyers, as follows:
• The savings withdrawal - which applies to everyone in KiwiSaver for at least three years, regardless of income, house price, contribution level or size of deposit. If you apply after April 1, you will be able to take out not only employee and employer contributions and returns earned in the account, but also all the tax credits you've received. The only money that must remain in the account will be the $1000 kick-start.
• The subsidy of $3000 after three years in KiwiSaver, rising to $5000 after five or more years, for those who qualify. From April 1, the subsidy will double if you buy a newly built home.
Also, the house price caps rise to $550,000 in Auckland, $450,000 in Wellington, Christchurch and some other areas, and $350,000 elsewhere.
For the subsidy - but not the withdrawal - there are income caps, set at $80,000 for one buyer and $120,000 for two or more buyers. Also, you have to have contributed at least a minimum percentage of your income, and you need a deposit of at least 10 per cent of the house price. For details, see www.my-first-home.co.nz.
Footnote: You might be surprised to learn that I almost approve of your comment about ignoring your quarterly statements.
While it's good to note your progress, don't take too much notice of how your fund has performed over three months or even a year or two - unless it charges high fees or its returns are way below other funds of similar risk, as shown in the KiwiSaver Fund Finder on www.sorted.org.nz.
Performances are volatile, especially in higher risk funds. Pay far more heed to how well you've done over the longest period for which you're given information.
• 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.