NZ Herald 23 August 2014

AAs someone over 65 who has been in KiwiSaver for more than five years, you can withdraw any or all of your KiwiSaver money pretty much whenever you like and invest or spend it any way you choose — including transferring it to another KiwiSaver fund.

Some providers have a few rules around withdrawals, but if you don’t like your provider’s rules, you can always switch providers.

That would actually be a good reason for changing providers — to get the service you want. But I’m afraid I can’t say the same for your suggested reason — fund performance.

To put it bluntly, judging the performance of a fund over five months can be worse than useless because it can give you exactly the wrong impression. It’s much too short a period.

The “Check Your Current Fund” feature in the KiwiSaver Fund Finder on www.sorted.org.nz tells us that your fund invests 49 per cent in shares, 32 per cent in bonds, 15 per cent in cash and 4 per cent in other assets.

Any fund with more than a minor holding in shares will have plateaus and some considerable downturns, although the long-term trend will almost certainly be upwards.

In a fund like yours with about half shares, over a single year there’s about a 14 per cent chance that the value will fall. But over five years it’s only about 1 per cent, and over ten years it’s practically zero.

So how has your particular fund performed lately, according to the Fund Finder?:

• Over the year ending June 30, the return after fees and tax was an excellent 9.36 per cent. Clearly some good returns happened in the other seven months of the year!
• Since April 2009 — which gives a more accurate picture — the average return has been 6.27 per cent a year.

The return since 2009 is a fair bit below the average for all balanced KiwiSaver funds of 7.77 per cent. That sort of gap can make a big difference over a long period. But — and this is important — we can’t know whether your fund’s rather poor performance will continue. Research shows that over and over again, the top dogs in one decade can be bottom dogs the next decade, and vice versa. Past performance really is no guide to the future.

That’s why the Fund Finder suggests that, instead of returns, people concentrate on each fund’s fees and service. And it tells us that your fund’s services are slightly below average, while the fees are considerably lower than average — a big plus.

Fees are much less likely than returns to change over time. And low fees make a big difference to the long-term growth of your account. So just how low are your fund’s fees?

The “Compare Funds” feature on the Fund Finder shows there are seven other balanced funds with lower fees, some of which also have higher scores than yours for services. They’re the funds you might consider switching to. It’s easy to switch. Just ask the new provider.

On other options besides KiwiSaver, I suggest you always hold the money you expect to spend in the next three years or so in bank term deposits, and leave the rest in a KiwiSaver balanced fund.

You could perhaps move the KiwiSaver money you don’t expect to spend for ten or 15 years into a higher-risk fund, as it will probably grow more. Most providers will let you be in more than one fund. But you would have to promise yourself that you wouldn’t panic when that fund plunges, as it sometimes will.

Good luck on making it to 100, well and happy.

AA capital gains tax can indeed be complex. I remember going cross-eyed studying the US system when I lived there.

But our current system can hardly be said to work well.

Because New Zealand doesn’t have a capital gains tax, we have to do something about taxing people who earn an income by buying and selling property, shares or other assets. So the law says that if someone bought an asset with the intention of selling it at a profit, they must pay income tax on that profit.

Labour won’t change that. “Treatment of traders: Assets currently taxed at the individual’s marginal or at the business tax rate will continue to fall under the existing regime,” says its website.

It’s often difficult, though, to prove someone’s intentions. Many — including some bragging property traders — seem to dodge the tax, and many others don’t seem to understand the law.

Your example of coins is a case in point. It seems you don’t realise gains on their sale can already be taxed. “If you buy collectables with the intention of resale then the gain made is taxable,” says Inland Revenue. “However, if they are bought for a hobby then no.”

The introduction of a CGT could stop the confusion. Can New Zealand do it better than other developed countries — almost all of which have a CGT?

We have an international reputation for doing at least some tax stuff well. Our GST is hailed for its simplicity. And I doubt if most New Zealand wage and salary earners appreciate what they don’t have to go through each year — compared with citizens of many other western countries, who laboriously fill out long tax returns.

A CGT can’t possibly be as simple as GST. I agree that it will inevitably be adjusted over time, and there’ll be cries of unfairness. But that doesn’t mean we shouldn’t introduce such a tax.

Why should somebody not be taxed for the gain they made — while just sitting around — on property or shares, when others are taxed on the money they earn by the sweat of their brows?

We can do it and still keep grandma’s sideboard out of the fray.

On whether there’ll be more debate on CGT, see the next Q&A.

ANot in this column. I’ve had lots of letters from readers on the subject and will run some over the next few weeks.

We’ll concentrate on questions likely to affect most people, rather than some of the more esoteric issues. That’s partly to avoid boring most readers to tears, and partly because Labour finance spokesperson David Parker has said an expert panel will work out the details later.

And I think that’s fair enough. If we get a government led by Labour after the election, it will be able to put government resources into studying the best way to set up a CGT. And I would be really surprised if that doesn’t include giving New Zealanders a chance to have their say.

AI’m not too sure about the physics side. I do know, though, that inflation was around long before Nixon.

More to the point, Labour says on its website, “The CGT will be set at a simple low flat rate of 15 per cent with no indexation for inflation.”

The lack of indexation looks unfair. It’s quite possible to have a capital gain lower than inflation, which means the value of the item has actually fallen in terms of the goods and services you could buy when you sold it.

However, David Parker says the low capital gains tax rate, of 15 per cent, “is simple and makes a generous allowance for inflation.”

The allowance argument works for those in the higher tax brackets of 30 and 33 per cent, but not for those in the 10.5 or 17.5 per cent brackets. Still, the latter group are less likely to make many capital gains. And simplicity is certainly a virtue.