COMMENT:

I came to KiwiSaver later and, at 47 and divorced, I have about $10,000 in it with a $220,000 mortgage. I'm paying extra on my mortgage and it should be paid off in 18 years.

I currently have my ASB KiwiSaver in a growth fund, but I'm wondering if the economic climate worldwide means I should perhaps move it to a balanced fund?

The economic climate doesn't mean you should move your money, but the fact that you're asking this question might.

Nobody knows what will happen to world economies and markets. It's easy to be swayed by the last article you read. But the experts get it wrong about as often as they get it right.

Sure, you could move to lower risk now. And sooner or later the market will drop — because it always does every now and then — and you may well feel glad you made the move. But you would probably have missed out on higher returns in the meantime.

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Also, you would then face another question: When should you move back into a growth fund? If you're like most people, it would be after it has risen considerably again. So you would miss out on those gains too.

As long-term readers of this column know, it's almost a mantra of mine: don't try to time markets.

It's far better, as well as easier, to ignore economic forecasts, get your money into the most suitable fund for you, and leave it there.

If you're in a growth fund, your balance will go down sometimes. But you've got nearly 20 years before you'll start withdrawing money. Ride out the ups and downs and you're highly likely to end up better off than in a balanced fund.

However, and this is important, if the thought of seeing your balance fall really worries you, that suggests you don't have the temperament for a growth fund. Move to a lower-risk fund, and stay there.

You can find out your best type of fund by using the KiwiSaver Fund Finder on sorted.org.nz.

Oh, and good on you for attacking that mortgage. It's much better to retire mortgage-free.

Taking a risk

I have been in KiwiSaver for five years now. I'm 33. I have all my money in a moderate-risk fund. I am thinking about splitting my money, putting a percentage in a higher-risk growth fund.

My goal is to buy a house with KiwiSaver, but if I don't need to, then I would just leave it for retirement. What do you think of this?

Putting some of your money in a higher-risk fund is a good way to test whether you can cope with market ups and downs.

However, if it's pretty likely that you will withdraw the money to buy a house within the next 10 years, it's probably better to stay in a moderate fund. In a growth fund, there's too big a risk that the market might fall right before you take your money out.

Still, you could perhaps transfer, say, 10 per cent of your money into growth. You would still get the learning with not too much extra risk.

Extra contribution

I am a member of KiwiSaver, but as I am part of the gig economy (that is, casualisation of the workforce) I only have bits and pieces of work. But I make sure I top up my KiwiSaver account by $1043 a year to ensure I get the full benefit of the tax credits.

I typically make the final top-up two weeks before the cut-off at the end of June, to ensure the money gets there in time.

It's a pity my provider does not have a report so I can see how much I have to contribute (instead, I download all my KiwiSaver transactions and add them up. I assume interest on member contributions does not count towards the credits).

Also, if funds are available, I put some in during the year, particularly if the unit price has dropped. I am contrarian.

Anyway, back to the main point. Although my last bit of paid work was in April, a KiwiSaver transaction came in at the end of June, so I overpaid (that is, contributed more than $1043).

I wonder if any consideration could be given to carrying over credits in such circumstances? I know it is not a bad thing to have extra savings. But consideration could be given to those in casual employment with patchy contributions.

I can't say that would be high on my list of recommended KiwiSaver changes. I doubt if many people would find themselves inadvertently contributing a great deal more than $1043. And as you say, it's not terrible if they do.

Such a change would add to admin costs, which in the end will either raise KiwiSaver fees or taxpayer expenses at Inland Revenue, for not much gain, it seems to me.

I'm interested, though, to learn that your provider doesn't tell you — in May or early June — how much more you need to contribute to get to $1043 by June 30.

The Commission for Financial Capability regularly surveys KiwiSaver providers on the services they offer, and one of their questions is: "If a KiwiSaver member of your scheme seems likely to contribute less than $1043 a year, do you contact them and inform them what they need to do to maximise their government contribution?" And every provider in a recent survey said they do.

It's possible that you didn't notice what your provider sent you. But that seems unlikely given that you would be motivated to notice, because you have to go to considerable hassle to get the info another way.

Next year, you might want to ask your provider how they send that info out. If, in fact, they don't, get back to me. Tom Hartmann at the commission says: "Please let me know if you uncover a provider who does not do what they say they do!"

Other readers in a similar situation might also want to ask their provider how they offer this service. If it's not happening, Hartmann and I would like to hear from you, too.

On your question about whether member contributions include interest, no they don't.

You mention being a contrarian. For the benefit of other readers, contrarian investing is about putting money in when others are withdrawing — because the market has fallen — and perhaps taking money out when others are investing, because the market is rising.

Contrarian investors tend to do better than average. But regular investing regardless of what the market is doing is usually best.

Still, in your case, if being contrarian means getting more into KiwiSaver, there's nothing wrong with that.

Lending solution

I refer to your recent letters regarding payday lenders.

I have little sympathy with loan providers that take advantage of vulnerable or naive borrowers. However, as you note, legally capping interest rates can simply result in worse outcomes, such as borrowers accessing funds from illegal sources.

Here is a possible alternative approach.

When a retail borrower defaults on a loan, this circumstance should automatically be referred as a dispute to the financial services dispute resolution body that the lender is a member of.

The dispute resolution body would then undertake an investigation as to whether the original lending was at a responsible level.

If the dispute resolution body finds that the lender has been irresponsible, this should result in a reduction in the loan to a level that is determined to be reasonable in the circumstances, such a reduction being at the cost of the lender.

The impact of introducing such a proposal would, I believe, lead to a reduction in irresponsible lending.

What do you think?

I like the idea. All financial services have to be a member of a disputes resolution scheme, and under the law all lenders have to act responsibly — not lending money to people likely to struggle to repay it. So it sounds as if it could work.

But I decided to ask an expert, Susan Taylor, chief executive of disputes resolution scheme Financial Services Complaints Ltd. FSCL's members include more than 260 non-bank lenders, many of which will be payday lenders. So FSCL would be doing lots of investigations under your proposal.

"While, in principle, the suggestion is worth exploring in more depth, there are some issues," says Taylor.

"First, the DRS [disputes resolution scheme] cannot investigate anything without the consumer's consent. The consumer has to ask for or agree to the DRS investigating and, unfortunately, some consumers are reluctant to complain.

"Second, I understand your reader may be suggesting referral for all defaults, but a default, especially on longer-term loans where the default doesn't occur for some years, may be due to other issues — for example, relationship breakdown or job loss."

That's where your suggested investigation would come in, I suppose.

Taylor continues: "With payday — that is, short-term, high-interest loans — the suggestion may have most merit. Where a borrower defaults almost immediately, this is strongly suggestive of irresponsible lending. But, as noted above, the borrower would have to agree to the DRS being involved."

She adds that another suggestion is "that all lenders be required by law to tell the borrower about their complaints process and DRS, when a borrower defaults and/or as soon as a complaint is raised".

That would certainly be a step in the right direction. But still, a consumer might not go ahead with a complaint, or co-operate under your proposal.

Perhaps we need a government-funded campaign to help consumers understand their rights and encourage them to exercise them.

By the way, I also asked Taylor if disputes resolution schemes would need more resources to do the extra work in your proposal. They may in the short term, she says.

"But as the lender pays a case fee for cases investigated by the DRS, the costs of extra complaints should be covered by the case fees."

Footnote: I'm a director of FSCL.

- 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.