KIWISAVER – OUR COMMENTS TO CLIENTS
You will all be well aware that because there are so many variables and options to consider,
making decisions about Kiwisaver is a complex process. As time passes knowledge of the scheme will grow and the best choices will become clearer. This scheme could take 2-3 years to settle down.\
In the meantime, our advice is firstly…Don’t panic! Right now no one knows all the answers. So do what you think looks the best now, and be prepared to change if there are better options.
To date, some of our comments/observations are as follows:
- In our experience people make more money maintaining direct control over their money than giving it to someone else to invest. However, some people are very poor savers, and some simply do not have either the necessary amount of money, or knowledge required to make direct investments. Kiwisaver will be good for these people.
- The incentives to invest the minimum in Kiwisaver are compelling. There is a gift of $2040 in year one, and then a gift of $1040 each year thereafter (the “gifts”), provided you contribute at least $1040 annually of your own money. Everyone, including children, should at least, take advantage of this.
- Where to put the money? In our view the trick will be to maintain the capital invested, rather than try and grow the returns through increasing risk. Remember fund managers get paid whether or not the fund loses money, the saver takes the losses. If someone is relying on Kiwisaver for retirement, then they cannot afford to take risks with their savings. They should select low risk funds i.e those weighted to fixed rate returns.
- The scheme is not so good for young people. They continue to support the older population by paying taxes to pay NZ Super and the Cullen Fund, and are likely to only have their own super savings to retire on. For them the benefits are a long way off, and they will probably be paying double. One solution to this is to bring back a means test for NZ Super and reduce taxes.
- For people nearing age 65 the scheme is a boomer. They can collect the gifts and still get NZ Super.
- Self-employed people should at least contribute the $1040 per year to ensure they can pick up the gifts. The return on investment is +100%, too good to be true? To us, paying more and picking up the tax credit on wages paid to yourself by your own company is not the best use of your cash. You should invest in your business, invest elsewhere direct (per 1. above) or repay debt.
- Kiwisaver will be more attractive to employees when the compulsory employer contribution increases to 4%. Before then the return on their own money will not be so great, although the gifts help. For employees with a mortgage the mortgage repayment option looks good.
- Finally, be assured, the Kiwisaver rules will change.
If you have any specific questions you are welcome to call and we will endeavour to provide an answer, or point you in the right direction to get one.
THE STORK HAS DELIVERED!
We are thrilled to announce that Shanelle and her partner Karl are now proud parents of a lovely baby boy whom they have named Kavahn. In Shanelle’s absence we are grateful to Mydawny for fulfilling the front line role.
Important: This is not advice. Readers should not act solely on the basis of the material contained in this report. Items herein are general comments only and do not constitute or convey advice perse. Changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas.
