This article was published on 10 February 2018. Some information may be out of date.

Q&As

  • What to do when employer doesn’t make KiwiSaver contributions on overtime pay
  • Is it OK for employer to encourage workers to join KiwiSaver?
  • KiwiSaver withdrawals not taxed
  • Long-term share and rental property investments about equal
  • Better to buy a section for tiny house?
  • Last week’s angry reader now remorseful

QMy weekly KiwiSaver employee contribution includes overtime, but the company is only paying 3 per cent of my base salary into KiwiSaver. Is this allowed? Obviously the company are trying to pay the lesser amount.

AYour employer is not playing ball.

“The 3 per cent compulsory employer contribution is calculated on the gross salary or wages,” says an Inland Revenue spokesman.

“The definition of gross salary or wages for KiwiSaver schemes generally means total salary, wages or allowances, including bonuses, commission, extra salary, gratuity, overtime and other remuneration of any kind before tax.

“By this definition the employer should be calculating their contribution on gross wages including overtime paid to the employee.”

I suggest you contact Inland Revenue about this.

“The best option would be to send a secure mail to IR via his/her myIR account, providing all the relevant details, or call the KiwiSaver number — 0800 549 472,” says the spokesman. “If all the facts lined up, we would contact the employer to remind them of their obligations and educate them — either by phone or letter.”

I then asked whether you and your workmates will get back the money you’ve missed out on.

“The employer will be required to pay the extra contributions (the amount that should have been paid on the overtime amount) and backdated to when the overtime was first paid,” the spokesman replied. “Late payment penalties may also be charged but this money goes to the Crown not the employee.”

So what about the interest or other returns you’ve haven’t received on that money?

“There is no additional amount we calculate for potential lost investment returns on that additional contributions sum. This would be a matter between the employee and employer.”

One step at a time, then. Get what you can through IR. Then, if the missed returns are significant, you and your workmates might approach the boss about it.

QI recently reviewed our employee participation in KiwiSaver and found three long-serving employees in their 50s who were not members.

When I explored this further with them, it became clear they did not fully understand how KiwiSaver worked, especially in respect of the company’s contributions.

Like many employers we contribute to KiwiSaver over and above wages. As you have pointed out many times, participation in KiwiSaver is a no brainer in this situation.

We discussed perhaps joining at their next pay review, so their take-home pay did not go backwards. These are not high-earning staff, so any savings they have at retirement will be very useful.

I have been reluctant to have these discussions for fear of stepping into the area of providing investment advice. I suspect many other small employers feel the same way, however, I see no alternative. Any suggestions?

AAfter the letter above, it’s great to hear from an employer who wants to encourage employees to join KiwiSaver — even though employer contributions will cost the company.

I understand your concern about advice. But it seems you’re in the clear.

Under the Financial Advisers Act 2008, one of the groups exempt from the rules about giving financial advice is “an employer providing a relevant service to an employee in connection with a financial product made available through the employee’s workplace,” says a spokesman for the Financial Markets Authority.

And in an FMA document, examples of what is not advice include “information about KiwiSaver, the features of a KiwiSaver scheme and procedural issues, such as the forms a customer would need to fill out.”

It goes on to say it’s not advice “to give an opinion or recommendation that investing in KiwiSaver is a good financial decision.”

The spokesman adds, “It is our experience that many of the authorised financial advisers who we monitor provide investment/advice seminars free of charge to workplaces. Some companies also choose to offer a preferred KiwiSaver scheme, which can lead to the provider offering education and support to employees.”

Do go ahead and explain to those employees what they’re missing out on.

QIs a straight regular drawdown on KiwiSaver tax exempt income? If it is, then presumably a regular monthly drawdown would not affect the tax rate of NZ Super. Correct?

AYes. Once you’re 65 — or if you joined KiwiSaver over 60, once you’ve been in for five years — you can withdraw from your account in any way you like. That money is not taxed, and doesn’t affect tax on NZ Super. It’s just like taking money out of a bank savings account.

In some other countries, withdrawals from similar schemes are taxable. That’s because there are tax breaks when people deposit into the scheme, or on returns earned over the years. While KiwiSaver members receive so-called tax credits, there are no actual tax breaks

Footnote: Before all the anti-KiwiSavers complain that today we have three Q&As on the topic, please note there was nothing on KiwiSaver in this year’s first two columns. It seemed about time we looked again at a hugely important topic for the majority of New Zealand adults.

But we are KiwiSaver-free from now on today!

QAfter over forty years of largely unaided experience in the Australasian share market and about twenty in the Auckland rental housing market, we’ve compared our experiences.

Measured against CPI inflation, around half of the 67 companies in which we have held shares generated negative results. But, overall, we have been very fortunate, as an analysis using the pooled internal rate of return method shows.

Our rental was purchased for cash — as were the shares of course. Given recent capital gains in the property market it has also been very kind to us. Time spent maintaining a fifty-year-old wooden house as well as regular grounds maintenance has not been costed.

How well have our investments performed? The tax paid return on our shares works out at over 10 per cent a year. This compares with just under 9 per cent on our rental, where a marginal tax rate of 17.5 per cent has been used throughout.

So for retirement income, is rental housing or shares better? At our age we are all but over rental housing, but sale is an all or nothing decision so we recently employed a property manager. This reduces the gross income from our rental by 10 per cent.

In stark contrast, we can continue to enjoy whatever share dividends we receive and, if necessary, sell parcels of our shares in a timely fashion.

Government and local body policies materially affect the rental housing market, as fluctuating immigration numbers and the cost of programmes mandated by the recent Healthy Homes Guarantee Act so clearly indicate.

Into the future it seems to us that it will be ‘horses for courses’. For those who can afford it, aiming at a foot in both markets plus money in the bank will continue to be wise counsel. Over the years it has been for us.

AYour comparison is particularly interesting because, unlike most people, you bought both your rental and shares with cash. That puts the two investments on a more even keel. If you borrow to buy any investment, that boosts potential returns but also risk.

Even so, we can’t draw any conclusions from a sample of one. You might have been extraordinarily lucky or unlucky with shares or property.

And I don’t want to start the whole shares v property debate again. But it’s interesting to see how close your returns have been on the two investments.

A few comments:

  • If half your shares did worse than inflation, that suggests bad luck. The over-all share market clearly beats inflation over the longer term.
  • Your exclusion of time spent on house and garden maintenance in the costs of the rental would be a clincher for some people. Others, though, enjoy taking care of a rental.
  • Your point about government and local body policies is worth noting. In the current climate, policy changes are much more likely to disadvantage rental property than shares.

QI admire the couple (Me and my Missus) in last week’s column who are prepared to sacrifice space to free up money for investing.

However, it bothers me that they will be paying up to $7,800 a year for a place to park their tiny house. For less than that, at current interest rates, they could borrow $100,000 over 30 years and buy a cheap section on which to park or plant the tiny house.

A permanent home on its own section could provide security for a bigger mortgage later. And although it would be more complicated to set up, the extra return, when they are ready to move on, should make it worthwhile.

AWhat a great example of how readers of this column help one another. That might be an excellent idea.

Last week’s correspondent said they plan to park their tiny house for $100 to $150 a week. A $100,000 mortgage at 6 per cent for 30 years would cost $277 a fortnight — so the money is similar.

It would probably depend, though, on whether the couple can buy a cheap enough section close to where they work.

QI see you published my email last week about the person who was fleeced (headlined “Criticism harsh”). It’s a pity, since as soon as I sent the email I regretted it. It was uncharitable and as you say this person was trying to warn others.

We all do silly things, so l should not sit in judgement on others. I hope your publishing the comment did not make the person feel worse than they already were.

Having said that, you must admit that it is exasperating that in spite of all the warnings people still fall for the most blatant scams. How often does one have to be told not to give a third party access to one’s computer? And what about the most fundamental advice, “if it sounds too good to be true, it probably (certainly) is.

My bet is that in spite of the warnings people will continue to be fleeced.

AAccording to one website, there are 36 Bible verses about fraud. And it was obviously around well before those verses were written. So yes, I’m sure you’re right, scams and fraud — like the poor — will always be with us. That’s why I keep writing about them every now and then.

Part of the trouble is that some get rich quick schemes work. People read about how well early investors in certain shares — for instance — have done, and dream they can do just as well.

And not all scams are obvious. Sometimes surprisingly well educated and sophisticated people are sucked in.

Look at the victims of Bernie Madoff, whose Ponzi scheme was said to be the largest financial fraud in US history. They are said to include Steven Spielberg, Kevin Bacon, Eric Roth, Larry King, Zsa Zsa Gabor, and John Malkovich.

Anyway, it was heart-warming to read your letter. Perhaps the moral of the story is that whenever we write an angry email, letter or text, it’s always wise to sit on it overnight before sending it.

No paywalls or ads — just generous people like you. All Kiwis deserve accurate, unbiased financial guidance. So let’s keep it free. Can you help? Every bit makes a difference.

Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. 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 [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.