NZ Herald 14 August 2010

AI’m not sure that ripples are what’s needed, as much as oil on troubled waters. I can understand why you would rather make your own KiwiSaver contributions directly. But I suspect most employees prefer to have their contributions taken out of their pay. And giving employees a choice would probably create an administrative nightmare.

So, assuming we’re stuck with the system we have, what can be done for you and others in similar situations?

Firstly, let’s look at how the system is supposed to work. “The employer has a legislative responsibility to make employee deductions from a member’s salary or wages, and to make compulsory employer contributions at 2 per cent of their gross salary or wage,” says Inland Revenue.

“Both employee and employer contributions must be accounted for on the employer’s monthly schedule (EMS) and paid with their PAYE.”

Broadly, there are two points at which this system can break down:

• The employer files an EMS but doesn’t hand over the KiwiSaver money. In this situation, Inland Revenue pays your employee contributions to your provider anyway. That’s because the government guarantees that if KiwiSaver money is taken out of your pay, it will make it into your account. Inland Revenue then recovers the money from the employer — or at least tries to.

The government also pays interest on your contributions, calculated from the 15th of the month in which the deductions were made — although currently the interest rate is only 1.59 per cent.

You may lose a little on this deal — if the 15th is later than when most deductions were actually made, and if the interest is less than you would have made in KiwiSaver. But sometimes you’ll gain — especially when KiwiSaver returns are sagging. Either way, it will probably make little difference to your total long-term savings.

And you won’t miss out on tax credit money. “When the delayed deductions are passed to your provider, IR will calculate whether you are entitled to any extra member tax credit as well and pay this at the same time,” says the department.

So far so good. However, contributions from your employer are not government guaranteed. While Inland Revenue will go after an employer, you won’t get that money in your KiwiSaver account until they’ve received it.

Adds the department, “When or if the employer contributions are received the member will receive interest on these from the first day of the month in which they are received by Inland Revenue.” But you don’t get interest on the period before the employer pays Inland Revenue. And if the money is never paid — which might happen, for example, if the employer goes into receivership — you miss out.

You’ll still gain from being in KiwiSaver, because of the kick-start and tax credits. But it’s not as good as it should be. That’s life.

• The employer doesn’t even file their EMS — which sounds like what has happened to you. “Without an EMS we are unable to ascertain the amount of employee contributions deducted from an employee’s wages, so are unable to pass these on to the provider,” says Inland Revenue.

But it doesn’t end there. Employers who don’t meet their EMS obligations “are charged penalties and are followed up by Inland Revenue teams set up to specifically police KiwiSaver.”

And once the EMS comes in, “employees will be credited with their contributions, plus interest, and with member tax credits from the date the deduction was first made.”

In this situation, it might help if you show the department payslips listing your KiwiSaver deductions, or any similar documents. Everyone should keep those.

In your particular case, you have given permission for me to pass your details on to Inland Revenue, and they are making sure you get what is due to you. Do let me know the outcome.

Others in a similar situation should ring Inland Revenue at 0800 549 472. While it might feel difficult to turn in your boss, it’s your right to take part in KiwiSaver. And it doesn’t say much for your employer if they won’t contribute 2 per cent of your pay towards your financial wellbeing.

It would be understandable, though, if you don’t do this until you have another job lined up or started. Inland Revenue will still chase up your former employer to make sure your KiwiSaver account is credited with at least your and the government’s contributions, plus interest.

ALet’s take your second question first. I’m happy to warn readers — and often do — that putting a large portion of their savings into any single share is highly risky. That share might perform badly for any number of reasons, including that the company documents didn’t clearly disclose what was going on.

In reply to your first question, people might put money into shares — regardless of what some directors do — because a well diversified portfolio or a share fund investment still tends to bring higher returns than other investments over the long term.

I don’t like what happened at Feltex. While it’s not clear whether the directors were at fault, it is clear that shareholders didn’t receive information they should have been given.

The Capital Market Development Taskforce, of which I was a member, argued strongly for clearer and more accurate information about all types of investments. The government is working on making that happen, and it’s also getting stroppier about taking to task companies that provide poor or misleading information.

Even when the government doesn’t win — as in the Feltex case — the message still goes out that all directors must be vigilant about their duties to shareholders. I reckon things are looking up for ordinary investors.

AAnyone who has worked in newspapers will have come across editors who ban certain expressions. One from my past was Stuart Forgotten-his-Surname at the Chicago Sun-Times, who got cross whenever any reporter wrote, “nobody knows”. “How can you be sure?” he would thunder. And I suppose “Nobody foresaw” is much the same.

I should, of course, have said that the vast majority didn’t foresee the downturn.

Of those who did, I would love to quote an old saying: “economists have predicted nine of the last five recessions”. But something tells me that would make you as cross as Stuart in Chicago, so I won’t. I’ll accept your chiding — like a good girl — and promise to be more careful in future. After all, the last time someone told me I had written “arrant nonsense” was in high school.

AIn last week’s column, we weren’t so much discussing where to retire, but where to buy property in the expectation that prices will grow faster than elsewhere, because lots of Boomers retire there.

I’m no expert on Queensland property. But I’ve heard too many sad stories to recommend anyone buy there as an investment. Still, it’s good to know you are enjoying yourselves.

AI didn’t realise that, and I must say it would have been helpful if HSBC had pointed it out when they emailed me about their funds. Nor were the eligibility rules apparent when I read about the funds on HSBC’s website — although obviously you found them when digging a bit deeper. Sorry to have raised people’s hopes.