This article was published on 21 January 2012. Some information may be out of date.

Q&As

  • 2 Q&As suggest it’s not always easy to go into the motel business, or other tourism or hospitality businesses
  • Should couple stop health insurance and set up their own fund to cover medical expenses?
  • Is KiwiSaver still worth being in, given changes that make it less attractive?

QI loved the series of replies that you had in your column late last year for the couple in their early 60s with capital but no decent paying jobs.

But, please, on behalf of travel writers/editors and as a member of the Food Writers Guild, I ask you to not encourage amateurs who have had no experience in professional hospitality or tourism into the business as a way of buying a job.

We already have a problem in New Zealand (and not just in provincial towns) of moteliers who don’t want to service customers, B & Bs that are dated or shabby or just not up to scratch, café owners and restaurateurs who don’t know food or customer service, or other tourism operators who run a business to please their own lifestyle, rather than love-up their customers.

Many of these folk do not realise that buying the building/lease/shuttle bus/boat is merely the start of their investment in the business. Many have not experienced 5-star customer service themselves so have no idea that it’s more than just having a nice personality and a love of food/gardens/meeting people. Many have no understanding of tourism marketing, industry standards, training and motivating staff and so on.

Tourism and hospitality demands high (and increasingly higher) standards and should not be seen as merely a retirement “keep busy” scheme for enthusiastic amateurs.

I am sure that the lovely couple who wrote to you last year have the nous and work ethic to dig into the professional associations, build up their own training and employ good industry hands to create a terrific new tourism or hospitality business.

I love it when I hit the back roads of New Zealand and meet great people putting their professional skills from other sectors to use in building terrific tourism products in previously under-developed regions — but professionalism is the key word here.

AGiven that you are Catherine Smith, editor of the Herald’s Weekend Life section, you probably know what you’re talking about. And so — to some extent — do most of us who have been on the receiving end of less than brilliant service.

Many New Zealanders probably have too little appreciation of what it takes to run a tourism business well. Read on.

QHaving recently sold my motel lease and retired, I offer some advice for anyone considering buying one. Motels fall into two main categories, those with less than 12 units tend to be “hobby motels”, where the lessee needs some other employment to provide sufficient income, and those over 12 units need staff. At under 12 units, the operator (typically a couple) may be able to do all the cleaning and grounds maintenance themselves. At the over-12s, there’s too much to do without help.

Two important financial considerations. Firstly, motel leases are like no other business leases. The owner is only responsible for the weather-tightness of the buildings. All other maintenance is the responsibility of the lessees. The lease provides for a small percentage of the rent (in addition to the rent) being set aside in a maintenance fund, but many operators find this totally inadequate.

Secondly, the rent. This is set (and subject to regular review) based on a valuer’s recommendation, and takes into account income. The more you earn, the more rent you will pay in the future.

Another matter, especially in the last few years, is public resistance to advertised room rates. Everyone expects to get a bargain, or beat you down on room rate, which has an effect on the bottom line.

And finally the hassle factor. Most guests are a pleasure to host, but a small minority can be so disgusting in their behaviour they make it hard to remember the nice ones!

A motel can be a pleasant lifestyle choice, but unless you want to pay a “minder” you cannot go out for a night out or holiday together.

AOh dear, you make running a motel sound a bit like a prison sentence. Still, it’s better for people to go in with their eyes open, so thanks for writing.

QWe are a retired couple in our late 60s who own our own home mortgage-free and have to date kept good health. We have had health insurance with one of the major providers for as long as we can remember.

Not long ago our premium increased by $60 per month to $440 monthly.

Recently we realised a rental investment and now have about $160,000 to reinvest. We have been toying with the idea of putting say $50,000 into a safe term investment, say earning 4 to 5 per cent, and adding to it monthly by the amount of the premium we would be paying to the insurer. This would be specifically for any future medical costs.

We have sufficient other investments to allow us to maintain a reasonable standard of living. What would your thoughts be on this idea?

AI like your thinking, but only to some extent.

My approach to insurance — whether it be for your house, contents, car, income stream or health — is that if you are less likely than average to make claims, insure only for big losses. On house, contents and car insurance, have a large excess. On income protection insurance, have a longer stand-down before you are covered. On health insurance, have coverage just for hospital care and perhaps specialist fees.

That way you are not subsidising others who lose belongings, crash cars, or visit the doctor much more often than you do.

When your minor losses are uninsured, remind yourself of how much you’ve saved by paying lower insurance premiums. When the bad stuff happens — your house burns down, your car is written off or you develop a serious illness — you won’t have the extra stress of financial worries.

QDo you think KiwiSaver is still good? I have now found out that the government does not match up the exact money. Before, when I put in $1043 they matched it. Now they only do half — $521. Also I may not be aware of other changes you are aware of.

AKiwiSaver is no longer the great opportunity it was a year ago, but it’s still well worth joining — and for most people still worth contributing to.

Two developments make KiwiSaver somewhat less attractive:

  • As you say, the tax credit has halved. After June this year, everyone who has contributed at least $1043 in the year ending June 30 will receive $521 into their KiwiSaver account. If you have contributed less than $1043, you will receive 50c for every dollar you put in.
  • From this coming April, employer contributions will be taxed. The tax rate — calculated on the sum of your income and the employer contribution — is similar to your income tax rate. It ranges from 10.5 per cent for those on low incomes to 33 per cent for those on high incomes.

From April 2013, though, things will improve for most people when the minimum employer and employee contributions rise from 2 per cent to 3 per cent. While the rise in employee contributions will be a challenge to some, it won’t bother most people. And employees will appreciate the higher employer contributions.

When we look at the total effect on employer contributions of the taxation this April and the rise to 3 per cent next April, everyone will end up with bigger employer contributions than they receive now. Some examples:

  • The employer of someone earning $30,000 currently contributes $600 a year. Taxation will reduce that to $537. But the boost to 3 per cent will push the contribution to $743.
  • On $50,000, employer contributions total $1000 now. They will drop to $825, but next year rise to $1,238.
  • On $100,000, employer contributions total $2000 now. They will drop to $1340, but next year rise to $2,010.

As you can see, those on lower incomes will fare the best.

One issue that arises out of the changes is whether people with debt should keep contributing to KiwiSaver. There’s no doubt that every eligible person should join, to get the $1000 kick-start. But some argue that it’s preferable for people with debt to stop contributing when they can — after a year for employees or immediately for non-employees — and put all their savings into debt reduction.

When the tax credit was higher, doing this made sense only for those with credit card or other high-interest debt. In almost all cases it wasn’t a good move for people with mortgages or student loans.

The student loan situation hasn’t changed. Because those loans are interest-free, it’s best to make just the compulsory repayments and contribute to KiwiSaver — until you get within three years of paying off the loan with compulsory payments. At that point, you should repay the loan as soon as you can, to make the most of the student loan repayment bonus. If you can’t afford to do KiwiSaver at the same time, take a contributions holiday until the loan is gone.

What about those with mortgages? The situation is not clear. It depends partly on the return on your KiwiSaver account — which you don’t know until after the fact — and your mortgage interest rate. Under one set of reasonable assumptions, it’s better to keep contributing to KiwiSaver. Under another, it’s better to concentrate on mortgage repayment.

If your employer uses total remuneration — under which KiwiSaver members get lower take-home pay because their employer contributions come out of their pay — KiwiSaver is not such a good deal. The same applies to non-employees, who of course get no employer contributions.

For these two groups, mortgage repayment may be the better option financially. But for the majority of employees, continuing to contribute to KiwiSaver is probably the better option.

However, there are other factors to consider, as follows:

  • If you keep contributing to KiwiSaver, you diversify your savings away from just property. It’s good to also have money in bonds, cash and shares, to spread your risk.
  • Regular contributors to KiwiSaver are likely to take more interest in their savings, and therefore to learn more about how financial markets work.
  • On the other hand, if your mortgage is large you may be keen to reduce your risk by cutting it back fast, especially if you are worried about job security or if one of a couple is planning to stop working.

Each person needs to weigh up the pros and cons. But don’t agonize too much. It probably won’t make a huge difference. Both mortgage repayment and contributing to KiwiSaver are good moves towards having a comfortable retirement.

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.