Mum's foresightedness in starting a KiwiSaver fund means far more in savings down the track than if her kids had saved it elsewhere. Picture / Getty Images
As I'm now 60, I was very keen to join KiwiSaver at its inception. To ensure my children enjoyed the benefits of the $1000 kick-start and the generous government contributions, in the beginning I always contributed at least $1043 into each account every year.
Now that my children are 27 and 22 they are extremely sceptical about the long-term benefits for them. They are concerned that when they reach retirement age (which of course seems like never at their age) they will be penalised by having been in KiwiSaver for all those years and having accumulated a decent amount, and there will be no government superannuation for them.
While we can't guarantee superannuation for anyone in the future, my children, I believe, have a good point. Are there any guarantees around entitlements many, many years down the track? They are both concerned, and I might add, convinced, that future governments will interfere with it and change the rules.
I have of course suggested that they keep putting into the fund until they at least buy their first home, and then take out whatever they can towards it and then go on a contributions holiday.
I have tried reasoning with them that the present contribution from the Government is still very generous, but this just makes them even more sceptical that this is how the Government is getting everyone on board, only to whip the rug out from under their feet later. Any reassuring words from you for them please?
Dear 20-somethings:
You're quite right that nobody can make any promises about KiwiSaver in the future - or at least any promises that we can be confident a future government will keep.
Imagine if somebody stood up today and said, "Hey! The government said in the 1970s that X would be happening now. Why isn't it?" Everyone would laugh, and point out that the current Government is very different from the one that made that promise. It would be the same in the years to come.
That means we can't rule out a future government giving less or no NZ Super to people with higher incomes or wealth. However, I have trouble picturing a government cutting NZ Super for those with large KiwiSaver balances but not for those with other investments - such as rental property or shares. Why? A couple of reasons:
Think of the message that would send young people at that time. Everyone would take KiwiSaver contributions holidays until retirement and save elsewhere.
We live in a democracy. Any day now, the 2.5 millionth person will join KiwiSaver, and the number keeps growing. A government that treated that many people badly wouldn't last long.
Still, there's the possibility that a future government could reduce NZ Super for people with any type of savings, in KiwiSaver or elsewhere.
Want to avoid that? You can always not save at all, and therefore get the highest level of NZ Super. Great, right?
Not exactly. Your total income would be lower than everyone who had saved. No government would set it up any other way. They will always want to give people an incentive to save for retirement, to reduce the burden on taxpayers of caring for the elderly.
It's true that quite a few retired people currently live on NZ Super alone, and they manage. But they can't afford any luxuries. And it hardly seems likely that the level of Super will rise much over the years, relative to wages.
Is that what you want - to struggle to make ends meet in your old age?
Okay, as your mum says, retirement is a long way off for you. So let's zoom in closer - to the idea of buying a first home.
KiwiSaver is clearly the best way to save for your first home. Not only can you withdraw everything you've put in, but also all your employer's contributions and all the Government's contributions except the kick-start, plus returns earned on all the money. That's far more than you'd have if you saved the same money elsewhere.
What's more, you might qualify for a first home subsidy of up to $5000, or $10,000 if you buy a newly built home.
It's a real pity for you - or anyone else who doesn't yet own a home - not to be contributing to KiwiSaver for as long as possible to maximise employer and government contributions.
And once you've got a home, it's a real pity not to benefit from many more years of government and employer inputs into your retirement savings. Those extra contributions roughly double the money going in, which means you'll have twice as big a nest egg at the other end. That might be $1 million compared with half a million. Wake up!
I suggest you give your mum a big "thank you" and keep those contributions going. Don't be the ones some years down the track gazing enviously at your mates who stuck with KiwiSaver.
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Hmmm. What important issue do you have in mind? And which great experiences? Getting extremely rich extremely quickly? Thanks, but I think I'll pass up this opportunity.
I would definitely recommend getting legal advice before giving money away.
We lent our two sons $75,000 interest-free each towards a home and business and then gifted each of them $25,000 each year, over the next three years.
Fortunately our lawyer prudently called us all in and put in a "repayable on demand" clause as, after the second year, our No 2 son fell through the cracks, through his own fault, and lost everything.
He had equity in his home, and so when he sold it the lawyer was able to call in the last $25,000 and we were able to put it aside for our grandchild's future, before it went the same way as the rest of the money.
Unfortunately, as much as we would like, our children are not always within our control, no matter how much confidence we might have in them.
Thanks for the warning. It's wise to hope for the best but plan for the worst.
For another sad tale of a son who fell off the financial fence, read on.
My son (31 years old, now married) was adjudged bankrupt about three years ago and comes out of his bankruptcy this month.
He was "forced" to have his KiwiSaver savings removed to repay creditors - I think the IRD was involved in this process.
My question is: Now that an Appeal Court decision has been reached, can he claim back those monies for his KiwiSaver account? If so, can they be used towards a first house purchase?
Thirdly, if he leaves these monies in KiwiSaver to retirement, can the Official Assignee then retake the monies? If so, could the person or company who took his funds in the first place take the money plus interest owing on that amount at retirement?
Or it may mean he is better to forget and remember the fiscal lesson!?
You're referring to the recent Court of Appeal decision that if someone goes bankrupt the Official Assignee can't use the person's KiwiSaver money to pay creditors.
That applies from now on. But what about past cases? Sounds like a long shot to me, but I asked the experts.
The Ministry of Business, Innovation and Employment didn't have a lot to say. "MBIE is unable to answer your questions as this is a complex area and there are a number of factors that need to be considered," said a spokesman. "Further, MBIE cannot give financial or legal advice and would urge that your reader takes proper legal and financial advice on these matters."
But DLA Piper New Zealand partner Rachel Taylor was more forthcoming. She suggests that your son talk to his KiwiSaver provider, "who can look at all the facts surrounding the withdrawal. It is unlikely that it will be recoverable - your son would most likely have made the significant financial hardship application himself, and at the request of the Official Assignee, who will have used the proceeds to pay creditors, and will not have the money now to pay it back."
She adds, "The KiwiSaver trustee (or supervisor) will have exercised its discretion in considering all applicable facts at the time to determine whether a hardship withdrawal should be made. On the basis that the discretion was exercised properly, it would be hard to overturn."
But let's just say that your son did get the money back into his KiwiSaver account. Could he use it towards a first home purchase? "While unlikely, if contributions were returned, they would be available for the payment of benefits after the son is discharged from bankruptcy, in the same way as would other KiwiSaver contributions," says Taylor.
On your questions about what might happen in retirement, she says, "The Court of Appeal case makes it clear that after discharge from bankruptcy, the Official Assignee cannot claim against retirement savings in a KiwiSaver scheme."
So is your son better off to just forget it? Well, it wouldn't hurt to have a chat with his provider. But if that gets him nowhere, he should probably get on with his life - hopefully with a more responsible attitude to things financial.
The photo on your article last week about homes for $300,000 found 1.5 hours out of Auckland - where is that area?
Sorry to raise your hopes. That picture is labelled "Urban river bank Waikato" in the Herald files. I suspect it's Hamilton, and I'm sure those houses would sell for well over $300,000.
I didn't choose the picture! What I had in mind was humbler houses in places like Huntly, which is little more than an hour from downtown Auckland outside the rush hour.
In a quick search I found a three-bedroom Huntly house for $139,000 and a two-bedroom one for $104,000, and they don't look like absolute dumps.
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.
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