Enrolling your children in KiwiSaver while they are young can get them into a savings habit from the word go. Photo / Getty Images
Q: I have two preschoolers and would like to get them set up with KiwiSaver.
Is this sensible or do you think I'd be better to set the money aside in a different investment product for them?
I would be looking at contributing $50 a month.
Someone suggested it would be a wasted investment because the fees would eat up the $1000 government contribution.
I wasn't sure.
Any recommendations on particular providers or what to consider when choosing who to go with?
A: The main negative of KiwiSaver for kids - as compared with saving for them elsewhere - is that the money is tied up until they buy a first home or retire. It can't be used for tertiary education, starting a business or anything else - unless they face bad financial or health problems, and let's not go there.
But there are three positives:
• Although children don't receive any tax credits until they're 18, they do get the $1000 kick-start. Grab it while it's still there.
• People under 18 aren't auto enrolled in KiwiSaver when they get a new job. But if they are already in the scheme and they take on part-time work as teens, they will contribute to KiwiSaver (unless they take a contributions holiday). This will get them into a savings habit from the word go, and they can learn about the ups and downs of financial markets.
• Looking ahead a bit, KiwiSaver is the best way to save for a first home. Your child will be able to withdraw most of the money - including employer contributions and tax credits - to buy a home, and may also be eligible for a subsidy.
Will the $1000 dwindle because of fees?
First, let's acknowledge that any KiwiSaver account - and particularly those in higher-risk funds - will be hit some years by negative returns in shares or other investments.
This is less obvious in a typical adult's account, because it's offset by contributions and tax credits. But in a child's account there are often few or no contributions.
Then there's the issue of how fees are structured. Most providers' KiwiSaver fees include a fixed amount - typically $23 to $40 a year but sometimes $50 or so - as well as a percentage of your balance. And the fixed fee takes a much bigger bite out of a $1000 or $2000 balance than, say, a $50,000 balance.
In a child's account, therefore, there might be some years in which fees outweigh returns and the balance falls. But it's really hard to imagine that happening often enough for the balance to go to zero, although I suppose it's possible.
One way to get around this is to choose a provider that doesn't charge a fixed fee, but just a percentage fee. A good source of information on this is Canstar's latest KiwiSaver comparison, at tinyurl.com/canstarkiwisaver
It shows that providers with no fixed fees include Kiwi Wealth, Smartshares and the Medical Assurance Society. (MAS limits its membership basically to health professionals, lawyers, accountants, architects, engineers, their families and employees.) And although Grosvenor charges a fixed fee on most of its funds, it doesn't on its default fund.
Of course the absence of a fixed fee isn't the only basis on which to choose a provider. I suggest you start by using the "Find the right type of fund for you" feature in the KiwiSaver Fund Finder on sorted.org.nz. That will establish how much risk you want for your child's account.
For adults, it's good to continue to work through the Fund Finder to find the best fund for you. But the Fund Finder doesn't give a breakdown of fixed and percentage fees. So, for children, let's move back to Canstar, and check its evaluations of funds with no fixed fee.
If you've decided on a defensive - very low risk - fund, Canstar's highest rating goes to Kiwi Wealth's cash fund.
If you want conservative, high ratings go to Grosvenor's default fund and Kiwi Wealth's default fund. Among balanced funds, it's Kiwi Wealth's or Smartshares' balanced fund. And among growth or aggressive funds, it's MAS' aggressive or growth fund or Kiwi Wealth's growth fund.
Once you've narrowed it down to a couple of funds, I suggest you check back on the KiwiSaver Fund Finder for details about each of your finalists. Use the "Check Your Current Fund" feature.
Okay, you've chosen and opened KiwiSaver accounts for the kids. How much should you contribute? Arguably, nothing. Because of the limitations on how the money can be used, you might prefer to make your monthly $50 contributions somewhere else. Ask the children's provider if they offer a similar non-KiwiSaver fund, from which money can be easily withdrawn.
But if you're happy to aim the money at a first home, saving in KiwiSaver is a good idea. And it does mean your children won't be able to raid the account for "naughty" spending in their teens.
Either way, keep in mind that tax credits start at 18. So at that point it's great if parents help with contributions to maximise the tax credit.
One final point: although a fund with no fixed fee will work well for an account with a low balance, some providers make up for that by charging a higher percentage fee. And that's not good for accounts with large balances, as our next Q&A illustrates.
Q: I am 68 and have been in KiwiSaver since inception (Gareth Morgan, now Kiwi Wealth). I am in a 100 per cent conservative fund and contribute 8 per cent of my wages plus 3 per cent from my employer.
I have $113,374 in the fund, but my fees keep going up. This month I was charged $96 in fees, and at this rate it will be over $1152 per year and rising.
I don't plan to retire until I am 75, but it seems the bigger my nest egg grows the more I pay in fees. At this rate I will be paying at least $6880 by the time I retire.
Am I better getting out of KiwiSaver now and investing my nest egg somewhere else?
I would really appreciate some advice on this.
A: I doubt it. At your age - and given you've been in KiwiSaver for more than five years - you can of course withdraw all your KiwiSaver savings. But even though you no longer receive tax credits, your employer is generous enough to continue its contributions, and that will considerably boost your total savings.
However, you probably should switch provider, which you can do simply by asking the new provider to move you.
As explained above, Kiwi Wealth is unusual in that it charges no fixed fees. But in some of its funds its percentage fee is pretty high, and the conservative fund is one of them - at 1.04 per cent, according to Canstar.
This hits people like you, with high KiwiSaver balances, particularly hard. It also explains why your fees keep rising at a worrying rate.
If you want to stick with a conservative fund, which is probably a good idea given you expect to spend the money fairly soon, you might look at Grosvenor or AMP's default funds, both with 0.39 per cent fees, or ASB's conservative fund, with 0.40 per cent, according to Canstar.
Although AMP and ASB charge fixed fees as well ($23.40 and $30 respectively), with your balance that doesn't make much difference.
I suggest you get more info on those funds from the KiwiSaver Fund Finder on sorted.org.nz. With any of them, your fees will be more than halved.
Q: This is regarding last week's piece re provincial home values and a questioner wanting to know what best to do with retaining the value of their home. Perhaps you might like to consider the amount of money realisable for retirement planning in relation to entry into retirement home care.
In the case of my relative living in a rural centre with depressed property values, the small worth of their mortgage-free home was of little consequence while they were active. Upon the death of one partner, when the time came for the surviving one to enter a retirement home, the sale of the family home raised insufficient funds for entry into that form of care.
Could this be another aspect for your questioner to consider?
A: It's true that selling an Auckland home these days will give you much more money than a provincial home. But last week's couple couldn't afford to move into the Auckland market - or any other big city.
They're in a small town, and the question is what should they do from here. And, as I said, staying put will probably be a better long-term bet than moving into rental accommodation.
Keep in mind, too, that the Government will help people who need long-term residential care in a rest home or hospital but can't afford it - as explained in another Q&A last week.
Q: The family lending issue in your column - with being fair to both daughters - is a bit sad, and I agree with the letter-writer who stated it's no one's business, and it's up to the father as it's his money.
My brother and I were not in this situation, but my brother and his wife worked hard and had children whereas I also worked hard but didn't have children. If Mum had chosen (Dad was already dead) to help them out financially, I would have been pleased, because I lived about 600km away and my brother and his family were the ones nearer to Mum, saw her more often and helped her a lot around the house.
When she died, her plain-English will gave us each 50:50. And when her house was sold, possessions divvied up and estate settled, I made sure my brother and his family received more financially and also a lot more of Mum's home items to either keep or sell.
Entitlement, resentment, jealousy and nastiness, especially when contesting a will, is downright selfish and disrespectful, in my opinion.
A: Not only that, but contesting a will can cause lifelong rifts.
What happened in your family is ideal - the parents split things equally but one heir gives more to another because they either deserve more or need more.
Perhaps there's a lesson there. If you bring up your kids well, they're likely to do the decent thing.
On your comment about it being up to the father in the original letter to this column, he was the one who wrote in the first place, looking for guidance. So it's not really helpful to just say it's up to him.
Of course, since then there have been a few conflicting thoughts from different readers, so he may be feeling more confused than enlightened!
I suppose in the end each person has to take the advice that resonates for them.
• 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 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, 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.
OPINION: You need to consider interest, taxes and fees.