Today I asked a colleague if she was in KiwiSaver and she said "yes and not happy". She said she was never given a choice and didn't think it was right.
I started saying that no other investment is backed by the government, also investing the $521 a year. But she stopped me and I could see she was upset.
She said she has friends who work in KiwiSaver and it is what they do with your money that she doesn't like. And she has been advised by these "friends" not to use KiwiSaver, but she has no choice.
I told her that I am genuinely surprised by that. She raised her hands and said she is not trained in this and doesn't know, so she trusts her friend.
At least she is in it - although apparently unwillingly. But this message may be spreading. Very sad.
I did try to find out where her friend worked without success. Pretty poor and sad if apparently a KiwiSaver fund employee is saying stuff like this.
It's likely the ones who need it most may not be saving for it.
They might also be the ones who listen to these messages and believe them.
This makes me cross. True, it's only one case. Maybe most KiwiSaver providers do better at educating their employees. But we do know that default KiwiSaver providers - and probably many others - are poor at educating default members. It's time that providers picked up their education performance.
KiwiSaver is a gift from New Zealand taxpayers not only to members, who receive tax credits, but also to providers, whose managed fund businesses have boomed since the scheme started. The least we can expect back is for providers to help everyone understand how the scheme works.
This applies particularly to default providers, which are handed auto-enrolled KiwiSaver members. In return, the providers have said they will help their members work out which fund is best for them. The Financial Markets Authority (FMA) measures their success by the percentage of default members either actively deciding to stay in the default fund or moving to another fund.
In a recent report, the FMA said that overall, and for four of the nine default providers, the results were worse in the year ending March 31 than in the year before.
The four that have done worse are ANZ, AMP, Booster and Mercer - but Booster is an exception in that it did way better than everyone else in 2016, and its 2017 performance is still the best of the nine default providers.
Of the other providers, ASB, Fisher, BNZ and KiwiWealth have all done about the same as last year. Only Westpac has shown a notable improvement.
Said FMA chief executive Rob Everett, "The lack of progress in this area by the default schemes is disappointing. Especially when the income from fees paid by default members has increased to $31.5 million, and providers still seem to have little trouble engaging other providers' members to get them to transfer.
"We have written to the chief executive of each default provider, seeking their commitment to meet their obligations to their default members. At the very least, we expect them to deliver on what they said they would do in their tenders to the Government seeking default status. Or, if they have tried that and it didn't work, to try something more effective."
Getting back to your sad tale, there's a message there for all KiwiSaver providers. Many other employers make a real effort to help their employees make the best of KiwiSaver.
I know because I've presented lots of employee seminars around the country. KiwiSaver providers should at least do as well as other employers at this. It would not only benefit their employees but also their marketing.
Your colleague is - or should be - wrong about not getting a choice about belonging to KiwiSaver. When she was first auto-enrolled, her employer should have told her she could opt out after two to eight weeks.
From then on, though, she's in. Still, she seems unaware that after a year of contributing she could take a contributions holiday, and renew that every five years all the way to retirement if she wished.
But obviously that's not the ideal outcome. We want her to be happily contributing.
I'm wondering if she's concerned at the idea that her KiwiSaver fund might invest in companies she dislikes, such as tobacco or arms companies.
If so, she could switch to an ethical or socially responsible fund. They vary in how their investments are chosen, but in general they avoid "nasty" companies and in some cases favour particularly "nice" companies.
Says the Commission for Financial Capability, "The following schemes have a framework in place to filter out investments that could be considered unethical, such as tobacco or weapons: AMP, Aon, ASB, BNZ, Booster, Fisher Funds, Fisher Funds TWO, Generate, Kiwi Wealth, Lifestages, Mercer, Milford, NZ Funds, QuayStreet, Simplicity, Summer and Westpac."
It also lists specific ethically oriented funds, as follows:
• Balanced funds (roughly half shares or property): AMP Responsible Investment Balanced Fund, Booster Socially Responsible Investment Balanced Fund, Craigs Investment Partners Quaystreet Balanced SRI Fund and Superlife Ethica Fund.
• Aggressive funds (almost all shares or property): ANZ Sustainable International Share Fund and Booster Socially Responsible Investment Growth Fund.
Levels of protection
Does KiwiSaver specifically offer greater protections than, say, other managed investment schemes?
Also, I seem to recall KiwiSaver default schemes having another layer of protection, over and above other funds within KiwiSaver. It would be great if your contact at the FMA would clarify this.
KiwiSaver doesn't come with greater investor protection than other managed funds, says the FMA.
Nor do default KiwiSaver funds - although they are watched more closely.
"The FMA runs the default monitoring panel, which receives reports on a range of issues from default fund provider supervisors," says a spokesman. "However, while this does mean default providers receive extra regulatory scrutiny, default status does not offer more protection for investors than other KiwiSaver funds or other managed investment funds."
He adds, "The changes introduced over the past few years have raised levels of investor protection for all retail managed funds in New Zealand. These changes include licensing fund managers, independent custody of funds and providing improved and simplified disclosure for investors.
"KiwiSaver does have some additional features, such as the dollar fee disclosure in members' statements, which will be required from next year."
Earlier this year, the International Monetary Fund published a report that listed the improvements New Zealand has made in this area.
However, the FMA reminds us that "no investment is risk-free. Investors should do their homework and choose a fund that meets their needs and risk appetite.
"Investors should also look at the impact of fees before investing. If you have questions or concerns about fees - or any other aspects of your investments - approach your provider. If you don't like what you hear, or their attitude to responding to your concerns, you can do business elsewhere."
Given that I'm a director of the FMA, I could be accused of favouritism if I applaud their comments not once but twice in a column. But they're right!
Property v shares
If we had kept the rentals in Auckland, we would probably have a slightly higher capital base, but we would not have had the retirement we have enjoyed from our portfolio, having spent all dividends and capital gained over the six years. Here are my thoughts about both options.
The problems with rental property: deteriorating assets, not very liquid, poor net yield (about 3-4 per cent), problematic tenants (low income, poor housekeeping, indifferent cooking customs, high turnover, etc), high risk of drug contamination, high management fees if used, small rental relative to capital value (for example, $500 a week for an asset worth $500,000). Also high stress and activity if self-managed. You ideally need to live near the rental.
On the positive side: capital gain if held for a long period, forced saving for investor, some small tax advantages during early part of investment.
The problems with shares: always changing in value, risk of capital loss if recession or company fails or company taken over, fewer tax benefits, high fees for management and transactions, requires a reasonable amount invested over quite a few share types to mitigate risk, but that brings down average net yield (probably about 4 to 5 per cent over a long period). Different set of stresses from rental property but still quite high activity needed if self-managed.
On the positive side: liquid assets, managing money and not people and therefore more manageable, portable assets - that is, not dependent on where you live. There are many buying options. Should gain in capital value over time as companies need to keep up with inflationary changes.
Thanks for a good summary. A few comments:
• The trouble with living near a rental is that if house values fall in that area - and it happens in all sorts of neighbourhoods - you're hit twice.
• Rental properties also change value often. It's just that we don't auction them off each day to find out. But still, the volatility is less than for shares.
• Several of your share problems are lessened if you invest in a low-fee share fund. Not all the shares will lose value, fees are lower and you need to do very little.
• Investing in lots of shares doesn't necessarily reduce your average yield.
• You say that shares are liquid - easily sold - but rentals are not. The investor can also sell off shares little by little, or spend the dividends and gains as you've done, to gradually fund their retirement.
A question of faith
Regarding the last letter in last week's column, you can actually argue with the writer. They said neither religious nor atheist is right or wrong, but that's not true. They can't both be simultaneously right or wrong. If God exists then atheism is wrong and vice versa!
The reader said, "Gay versus straight, married versus single, religious versus atheist, shares versus property. It's simply a different way of living. Neither right nor wrong."
I think he was referring to the religious or atheist way of living, rather than whether their thinking was right or wrong. But I take your point.
However, I'm not sure where it leaves the agnostic - defined by the Urban Dictionary (with slightly cleaned up language) as "A person who is sensible enough to admit that they have no clue what is going on in the universe. Contrary to both a Theist (someone who sits in church thinking they have it figured out) and an Atheist (someone who sits at Starbucks thinking they have it figured out)."
• 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 email@example.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.