NZ Herald 1 October 2016

AOh no! I’m the Golden Agers’ Killjoy.

The key phrase in your letter is “with enough super and other income to live off”. If you’ve got plenty of money — or if you’re setting aside savings to spend much later in your retirement — investing in shares or a share fund is fine.

I’m glad that you would spread the money over four shares in different industries, rather than plonking it all into a single company. Even so, you have to be prepared to see the value of your portfolio halve or worse in a market crash. As you say, good companies recover, but many people get too anxious while waiting.

However, I wouldn’t recommend shares for someone — in retirement or not — who is expecting to sell them and spend the money within ten years. As I’ve said many times, over a shortish period there’s too big a chance the market will be down when you want to sell.

I realise that makes my advice a bit boring. But when it comes to money to live off, retirees are better bored than broke.

There are plenty of other ways to inject a dash of adventure into retirement. Sky diving? Public speaking? Helping a refugee family settle in? Getting married at 95?

AYou’re right, this should be simpler than it is.

Let’s start with the instructions on an Inland Revenue form: “If you have a joint account you can only use one IRD number, so you’ll need to decide which is the most appropriate rate for you.

“For example, if you both earn over $70,000, we recommend the 33 per cent rate. If one account holder earns over $48,000 and the other less than $48,000, we recommend the 30 per cent rate — this avoids the higher earner having an end-of-year tax bill.”

“Okay,” I asked Inland Revenue, “but if a couple uses the higher rate, the one on the lower income is paying too much tax on their half of the interest. Can they claim that back, and if so how?”

The reply: “Yes, the individual earning a lower income could potentially be due a tax refund.” It would depend on the circumstances, said the spokesman. “They would need to request a PTS (personal tax summary) or file an IR3 return to determine their full tax liability — whichever was applicable.”

My next question: “If the couple decides to use the lower rate, how will it come about that the higher earner has to pay an end-of-year tax bill?”

IR: “If the higher earner would normally file an IR3 tax return or PTS, then this income and the tax paid on it would form part of their return and may result in an outcome where they owed tax, depending on their other income and tax paid on that income, along with other relevant circumstances.”

I then asked Inland Revenue whether you could put the account in your name only.

Back came this: “Whether this arrangement is acceptable will depend on whether the depositor has relinquished control of the investment and/or whether there are other tax avoidance considerations. It would not be considered appropriate to structure the arrangement in a way that did not reflect the reality of the situation. In this example, if the husband had relinquished control of the deposited funds to the wife, then having the account interest taxed at the wife’s applicable RWT tax rate would be appropriate.”

“But,” I asked — starting to feel as if I were in a cat and mouse game — ” What do you mean by ‘other tax avoidance considerations’?”

IR: “Tax avoidance may be a consideration where a taxpayer adopts a tax structure so as to reduce the tax that they pay in a way that is contrary to the intentions of Parliament.”

One last question from me: “Does IR ever challenge ‘the reality’ of such a situation? Under what circumstances is that likely to come about?”

The reply: “New Zealand’s tax system is based on voluntary compliance, and it is expected that taxpayers be aware of their obligations and comply with them, or seek professional help to do so. Inland Revenue has a range of intelligence and analytics tools at our disposal that could potentially lead to a taxpayer’s affairs coming under scrutiny if we believed they hadn’t returned all their income or paid the correct tax on that income. This is likely to arise as a result of a wider investigation of a taxpayer’s affairs.”

So there you go. Your safest option is to use your husband’s tax rate, and at the end of the tax year you file for a refund to get back the overpayment of tax on your half of the interest earned. But if your husband genuinely relinquishes control of the money, the account could be in your name.

AMaybe, but maybe not. The people who make exchange rate forecasts are probably wrong as often as they are right. Too many unpredictable factors feed into exchange rates. Brexit is a good example.

I suggest your daughter drip feeds her money back to New Zealand, perhaps in equal monthly batches. When she looks back on it, she’ll find that she transferred some money at what turn out to be relatively good rates, and some not so good. It’s not as good as perfect timing, but that takes extraordinary luck. And it certainly beats moving the lot at what turns out to be the worst timing.

PS. I hope she has saved heaps!

ANot quite. The big four — ANZ, ASB, BNZ and Westpac — now require 30 to 32 days notice to break a term deposit, unless you are suffering financial hardship.

“The changes are a consequence of the lessons from the global financial crisis and are designed to improve the resilience of the banking sector,” says the Banking Ombudsman Scheme.

They result from newish Australian banking regulations, and so apply only to the big Aussie-owned banks. There’s no similar rule at Kiwibank or — as far as I know — any other New Zealand-owned bank.

The Banking Ombudsman Scheme put out a Quick Guide on breaking term deposits at the beginning of 2015, “following a number of complaints about some banks now requiring notice if a customer wants to break a term deposit early,” says deputy Banking Ombudsman Sarah Parker. The guide is at tinyurl.com/BreakTD.

She adds, “We advise people to check out the relevant terms and conditions before they put their money into a term deposit, as well as checking the requirements for accessing funds early.”

If you’ve got a credit card, this change may not affect you much. Typically you get at least a month’s free credit on a card. So if your old fridge dies you can buy a new one on the credit card, and give notice to your bank the same day that you want to break your term deposit. You should then get that money in time to pay the credit card bill.

AInteresting point, but there are two problems:

• None of the money we pay in taxes over our working lives is set aside to pay our NZ Super.

  True, money the government puts into the NZ Superannuation Fund — or Cullen Fund — will be used to supplement NZ Super payments, probably from the 2030s. But currently, NZ Super payments are fully funded by today’s taxpayers.

• What about the families of people who receive only a year’s NZ Super and then die? Or those who get it for just two years? Shouldn’t they also get something? This could turn into an administrative nightmare.

  One of the great attributes of NZ Super — admired by experts around the world — is its simplicity. That makes it cheaper to run and easier to understand than many other state pension schemes. Let’s keep it that way.