Mary Holm: The best way to lock in KiwiSaver gains

Speak with your provider to find the key to locking in the best KiwiSaver fund. Photo / 123RF

COMMENT:

I was wondering if there's a way to lock in the gains in my KiwiSaver account, which is currently in a growth fund. I am 57.

Can I take the $85,000 that my KiwiSaver account now has and lock it in a less risky fund, but have any other contributions from now on go into a growth fund? Then at retirement I know that I will have at least $85,000. Is this possible?

Yes it is. While you're allowed to be with only one KiwiSaver provider, you can have money in several of that provider's funds.

And the provider should be happy to handle your request. If not, switch to one that is.

The next question is whether this is a wise move. As you say, it does give you more certainty. But your $85,000 will probably grow more slowly over the eight years until you get to 65.

And keep in mind that you may not want to spend all your KiwiSaver money at that stage.

Many people plan to spend their KiwiSaver savings over, say, 20 years of retirement. So it's a good idea to keep some of the money in a higher-risk fund, which will probably grow more over the years.

But you're still putting new contributions into the growth fund, so you'll have an increasing amount in that account that could be for later in your retirement. So go for it.

Unfair legislation

What a bunch of b******s the KiwiSaver people are who won't give Tim Fairhill, the man with Down syndrome, an early payout.

It's absolutely typical of unimaginative Kiwis who have the attitude, "Those are the rules, our hands are tied".

Well, here's a solution. Someone gives Mr Fairhill $8000 (the value of his KiwiSaver funds), and when Mr Fairhill's plan matures, the benefactor is paid back, plus the growth on the money in the meantime. It's a shame the fund managers couldn't think of that.

For readers not up with the story, people with Down syndrome have an average life expectancy of 57. Tim Fairhill is 39, and his mother Joan Fairhill is trying to get his KiwiSaver money released well before the usual age of 65.

Says the Commission for Financial Capability, which supports his case: "Tim has saved $8000 in his KiwiSaver account through his job at Countdown supermarket in Te Atatu.

He desperately wants to draw down on his savings so he can retire and travel overseas to visit his brother and niece before his premature ageing, which is part of Down syndrome, renders him unable to do so.

"His mother, Joan, has tried every avenue to have Tim's funds released, but has discovered it is impossible under the current legislation. Tim's condition, and those of other New Zealanders with congenital life-shortening conditions, does not come under any of the justifications for opting out of the scheme, or having funds released under hardship applications."

Joan Fairhill has made a submission on Tim's behalf to a select committee considering changes to KiwiSaver rules, and plans to speak to the committee in early September.

Like Retirement Commissioner Diane Maxwell, I support the Fairhills. There needs to be a way for Tim and others like him to withdraw their money early. This issue has come up in this column before, and it's time it was fixed.

The difficulty, I suppose, is that some people in different circumstances might claim they should also be allowed early access to their money when, in fact, they are just gaming the system. To prevent that, the rules often make it quite tough for genuine people to get what they need.

But we must be able to find a way around this. In the meantime, as you say, surely someone who knows the family could lend Tim the money on condition they get it back later.

Caught by a technicality

I recently made an online five-year term deposit with Westpac Bank. The stated interest rate was 4.1 per cent, but the final screen confirming the deposit read 4 per cent.

I queried this with Westpac and was told that since the end date of the term was a Saturday the deposit term reverted to the previous business day. And since this was less than 5 years I would receive the 4-year rate of 4 per cent.

On a $100,000 deposit this is a win for the bank of over $500. And this will occur two out of seven times, whenever the maturity date falls on a weekend. Would it not be fair to warn depositors?

It certainly would. What's more, Westpac will put you right.

"Thank you for bringing this to our attention," says a spokesman for the bank. "We have identified this as a programming anomaly in our recently upgraded online term deposit application form."

He goes on to say: "The isolated error has affected a very small number of customers — it appears it has only been triggered by applications for five-year term deposits that have six separate factors in common."

Those factors are: an application was made online in Westpac One internet banking; it was a new term deposit, not a roll-over; it was a term deposit and not a term PIE; it was for a five-year term; the maturity date would fall on a non-business day; and the application was made by a private individual, not a joint application or organisation/trust.

"Lucky" you must have ticked all those boxes.

But fear not. "We have work under way to (a) fix the online form and (b) notify the small number of affected term deposit holders that the higher interest rate will be applied to their investment, as well as any quarterly or monthly returns that have already been paid, so they are not out of pocket," says the spokesman.

"We apologise to affected customers and assure them that we will be in touch."

Technology is wonderful until it isn't.

Planning for future

I recently offered my daughter and son-in-law that if they set up their 1-year-old in KiwiSaver I would contribute $1000 a year, so that potentially he had a head start when it comes to getting a deposit on his first house.

I am aware that the Government contribution doesn't kick in until 18 years old.

My daughter and son-in-law have come back to me, asking if it would be better to put money into a non-KiwiSaver managed fund so that there is more flexibility around what the money is spent on.

Their point was that home ownership may be even more difficult in the future and that KiwiSaver would lock the money up until retirement if my grandson didn't buy a house.

My judgment is that home ownership has been really good for me and many people around me. I think that every generation has their challenges around home ownership, but there are ways to make it happen.

My questions are:
• Rather than do KiwiSaver, could you comment on what other options might provide flexibility if home ownership wasn't a real prospect?
• Can you comment on the suitability of KiwiSaver as a way to set up my grandson for home ownership?
• Is my preference for home ownership or retirement reasonable? Or should I broaden my viewpoint?

I would love to hear your perspective.

Let's take your questions in order:

• Other options: Probably the best option other than KiwiSaver is what your daughter and son-in-law suggest — a non-KiwiSaver managed fund. Last week I wrote about how they're suitable for this type of investment. You can contribute and withdraw whenever you want to.

It will almost certainly be 20 or more years before your wee grandson buys a house, so a growth or aggressive fund is a good idea. As long as you can cope with the ups and downs, the young man will almost certainly end up with more money than in a lower-risk fund.

You can choose a fund by using the KiwiSaver Fund Finder on sorted.org.nz, and then asking your chosen provider if they have a similar non-KiwiSaver fund.

However, one advantage of using KiwiSaver is that you can put the account in the child's name, so it will be taxed at his lower rate, and yet he won't be able to withdraw the money and blow it on something you don't approve of.

• Suitability of KiwiSaver for home ownership: It's very suitable. The young man will be able to withdraw all but $1000 to buy a home, regardless of his income or the house price. And if he qualifies, he may also get a HomeStart grant of up to $5000, or $10,000 on a newly-built home.

Even if he can't get the grant, he will have more in KiwiSaver than in other savings because of government and probably employer contributions — as long as he contributes himself.

This, of course, assumes the rules won't change.

They probably will over so long a period. But I would be really surprised if the changes made it harder to use KiwiSaver money for a home. There would be too big an outcry.

• Your preference for home ownership or retirement: I don't think home ownership is the be-all and end-all. These days, some people are thinking of being lifelong tenants, and there are advantages to that.

True, you can get kicked out at quite short notice and you have less say in decorating, planning the garden and so on. But you don't have to worry about maintenance, and you can more easily move house.

The key to making your finances work without owning a home is to save a large sum to cover your accommodation in retirement — whether you rent until you die or buy a home at that stage.

That means being disciplined about saving throughout life, and using a higher-risk fund so you get high returns.

What better place for that than KiwiSaver — particularly as it ties up your money until retirement so you're not tempted to squander it?

What this all amounts to is that I broadly agree with your preference for KiwiSaver.

There are, of course, other good uses your grandson might find for the money when he grows up, such as studying or setting up a business. But perhaps he could save for those, maybe with his parents' help.

I see no reason why you shouldn't zero in on home ownership or, failing that, bigger retirement savings.

Helping out the family

I'm looking forward to reading more about financially supporting kids.

I'm a pensioner. I put $50 a month in a savings account for my granddaughter, with an extra $50 on her birthday and Christmas. When it gets to be $2000 or $3000, it goes into a term deposit for one year.

This doesn't earn a lot, but it is used when her parents are finding school or other interests difficult to pay for. When visiting them, my week's grocery money is their "fridge money". I also give $15 a month to KidsCan.

Not much but helpful in the here and now.

I'm sure your granddaughter's parents find the money really helpful. Supporting children when they get older is great but, as you say, "here and now" matters too.

Who knows? Your granddaughter might develop a great talent, interest or career because of your assistance.

I hope that she, in turn, will appreciate your help when she's old enough.

Thanks for a heart-warming letter.

- Mary Holm is a freelance journalist, a director of the Financial Markets Authority and Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. Her website is www.maryholm.com. 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 mary@maryholm.com or Money Column, Private Bag 92198 Victoria St West, Auckland 1142. 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.

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