This article was published on 16 November 2019. Some information may be out of date.

Q&As

QI recently won $200,000 in Lotto. We owe about $125,000 on our home. The value of the house is about $1 million.

I’m thinking we pay the mortgage off first, then I’m wondering what to do with the remaining amount? Or do we invest the full amount in something else, e.g. another property given the low interest rates currently?

AMany people would love to have to your problem! Your win is substantial, but not seriously life-changing, which is probably perfect. Research on big winners in lotteries shows many don’t end up happier.

I hope you celebrated your win by spending a few thousand on a party or weekend away or some other treat.

What you should do with the rest depends on your appetite for risk and your situation. It’s never a bad move to pay off a mortgage, and you can then switch to serious saving for retirement.

But if you’re relatively young, and you and your partner have secure and well-paid work, you might be in a strong position to take on some risk — buy a rental property, or perhaps invest in a share fund.

Your question is a variation on a more common theme — without the Lotto win! And I usually favour paying down a mortgage over investing elsewhere. If, for example, your mortgage interest rate is 4 per cent, paying it off improves your wealth as much as an investment that earns 4 per cent after fees and tax. And it’s risk-free. Not bad.

However, you can probably earn more, on average, in a riskier investment. Keep in mind, though, that a rental property comes with some hassles and worries. And you may have to wait many years to sell at a big gain. Who knows in the current market?

In a share fund, there’s much less work and worry. But there are also no guarantees that the strong recent share performance will continue.

In either property or shares, you would need to regard it as a long-term investment– sticking with it through down times.

QLast week’s letter about interest-free loans between family members reminded me of Islamic banking, where interest is not allowed to be charged, and other strategies are used to make up for this.

Do you know what the IRD’s approach to Islamic banking is?

ANo, but I asked, and here’s the reply:

“‘Islamic banking’ is a broad term for various banking products which don’t recognise interest,” says an Inland Revenue spokeswoman.

“In general, New Zealand’s financial arrangement rules would apply to all banking products — either Islamic or western cultural banking products.

“What is captured as ‘income for tax purposes’ under these rules is any money that is returned that is more than the initial amount advanced (e.g. under a loan arrangement).

“How the financial arrangements rules apply to the various products would, however, need case-by-case analysis.”

QThe value of my investment in the AMP Personal Managed Funds Balanced Fund recently dropped 3.76 per cent in 17 days. I would like to know why this sudden drastic drop occurred. I have emailed AMP but received a vague and unhelpful reply.

The details: Recently I received a statement that shows my balance at 30 September as $36,854. A few days later I received a letter stating that my fund will be closed on 5 December. The Settlement Form states that my investment value at 17 October 2019 is $35,468.

I am puzzled and alarmed to have lost nearly $1400 in 17 days. If it is because AMP have decided to close the fund, they have done their clients a grave disservice. I would be very interested in your comments.

AAMP decided to close the group of funds “in the long-term interests of clients to provide more contemporary investment options, with the benefits of greater flexibility and an enhanced digital experience,” says an AMP spokesperson.

Why did your balance drop? In reviewing each fund’s tax position, AMP found that your fund “had a tax amount due, and this amount was subtracted from the member’s balance, shown as a percentage drop in their unit price.”

The spokesperson adds that the company is helping investors to reinvest into one of AMP’s “contemporary investment options”, or be paid out in cash, or a bit of both. It’s a pity their communications haven’t been clearer for you.

I just want to note, though, that a 3.76 per cent drop over a couple of weeks is not drastic in a balanced fund. If half its investments are shares, and the share market drops more than 10 per cent — not uncommon — the balanced fund would drop 5 per cent. Perhaps you haven’t been watching your balance closely until recently.

In the long run, most balanced funds grow, especially if fees are low. But there’s some volatility along the way.

QI was interested to read the concerns your correspondent had regarding the continuation of begging letters from charities once he has passed away.

As executor for my in-laws I have recently been through the same scenario. It is distressing to keep receiving letters addressed to the deceased, with their upbeat tone and effusive thanks.

I quickly learned to separate the good work these charities do from their marketing departments, which have an altogether more basic task to fulfil.

I phoned all the charities (and spoke to unanimously caring and concerned people). This had about a 50 per cent success rate, but the letters continued to come from some. When second phone calls failed, returning letters marked “deceased” (uncomfortable as that was) seems to have worked so far.

One other consideration for your correspondent is to ensure his executor has a full list of charitable donations, so that tax refunds can be completed easily, as not all tax receipts arrive promptly.

AThanks for some useful tips. I like your point about separating the marketing work. The next correspondent has had a similar experience to yours.

QI have just had to deal with the process mentioned in your last column headed “The end of charity”.

No one wants charity letters turning up at an address for years in the future. This is not something new owners of a house should have to put up with.

When my Dad died, I went online and emailed and/or phoned all his charities, and finally I sent back the unopened envelopes with return to sender (recipient deceased).

I promptly received an email back from the Stroke Foundation, which was actually really comforting and is a good template for other charities:

  • “Thank you for your email. I have removed [name] from our database and mailing list so there should be no more mail addressed to him from us.

    “We are deeply grateful to all his support over the years, it has gone a long way in furthering the work of our organisation. You have my sincerest condolences for his passing.

    “Please let me know if we can assist you in any other matters.”

We will not know for a while if the other charities are equally responsive and whether returning the envelopes is a good back up. It is a sad chore to have to do, but good to think about ahead of time as your writers are doing.

AYes, a lovely letter from the Stroke Foundation.

It’s been a long time since I received so many letters about one Q&A. Thanks everyone. I’ll publish more next week, including some ways to make donating easier.

QIn your reply last week to the person who complained that it was unfair that a millionaire got the same super as someone struggling on $21 an hour, you could have further pointed out that the millionaire could well feel aggrieved that his pension was not much larger than someone who had contributed much less over the years.

Or, put another way, the lower-paid recipient could consider himself/herself lucky to get the same payout as the much higher contributing millionaire.

AIt depends on your definition of “contributing.”.

One of the much-praised features of NZ Super is that it’s not based on tax paid over the recipient’s working life. That means, for example, that someone who has contributed hugely by looking after a person with a disability gets as much as a person who has worked in a lucrative and cushy office job all their life. And, for that matter, the disabled person also gets their fair share.

QYou said in your last column:

  • Paying less NZ Super to the wealthy, “would complicate a simple system that is praised around the world.”
  • “The rich tend to find a way around means testing, using trusts and other tricks.”
  • “Under (the correspondent’s) proposed system, people would have to show they are in need. Some people would no doubt squirrel away money.”

Oh please! So why not apply your logic to beneficiaries too then? Some use tricks, some squirrel away money. But they absolutely have to prove their need, bank accounts are investigated, IRD is looked into.

And it complicates it? The cost of “complications” is far less than the massive amount given to superannuants who don’t need the money. It would still save millions.

The real reason? The rich want every last cent they can get.

Signed: A poor superannuitant, and no we don’t get “extra”. Apparently you are only poor if your mortgage is over a certain amount. And other bills don’t count.

AYes, beneficiaries do have to prove their need. And that’s tough on people in genuine need. But, sadly, it seems unavoidable in the welfare system if we’re to catch the cheats.

That doesn’t mean we want to extend this to superannuitants. Please, no!

On complications, I agree that their cost is not reason enough not to means-test NZ Super. But that, coupled with concerns about proving need and the fact that wealthy people can pay experts to set up their finances to get favourable treatment, make me think the current system is preferable.

Of course you’re free to disagree!

QWe all have different ideas of what is “fair”. Some of us would say that we have paid towards our NZ Superannuation so why should we not receive it?

We did not inherit a fortune. We worked hard, saved and paid taxes to support those in need. We pay rates so that others who do not can use the services provided. We pay tax on profits from our savings. How many ways are we expected to subsidise others?

I have noticed that far-left philosophies have come to the fore now that people have had time to forget what happened in the countries where they were formerly in control. Also those of an older age group will remember the hatred of the means-test that was often expressed in the past.

ASomebody once said Americans love freedom, while New Zealanders love fairness. It’s a big issue in this country, and yes, fairness is in the eye of the beholder.

You haven’t actually paid for your NZ Super. Your taxes over the years have gone towards current government expenses — including the pensions of old people at that time. If you’re now getting Super, it comes from current taxpayers. But still, many superannuitants feel they are entitled to the money.

However, I’m not sure that means-testing NZ Super is a “far left” policy, given it’s done in many other capitalist countries. And while Labour brought in the tax surcharge — which effectively means-tested NZ Super — in 1985, it was National that made it tougher in 1990–91.

By the time the surcharge was abolished, in 1998, I agree that it aroused much anger — including amongst superannuitants not affected by it. That disharmony is another reason to continue with what we’ve got.

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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.