NZ Herald 27 August 2016

AThere are a few factors to weigh up in the KiwiSaver versus non-KiwiSaver decision. Perhaps the most important is your personality.

If you have $10,000 sitting in an accessible investment, are you likely to one day say, “Blow it all. Life is short. I’m going on a big trip”.

That’s not necessarily a bad thing. Some people live too much for tomorrow. But if you really want to save the money for retirement, you’re best to tie it up in KiwiSaver.

However, if you’re more disciplined, it’s a good idea to consider a non-KiwiSaver investment. You never know when you might want access to the money in an emergency or to invest in, say, your adult child’s promising new business.

A second factor, as you point out, is fees. In the case of SuperLife, fees are lower in their similar non-KiwiSaver investments. However, many providers charge higher fees outside KiwiSaver. It’s important to check that out.

Your decision should also depend on how close you are to NZ Super age, when you’ll gain access to the money either way, and how much other accessible money you have.

AThat’s great. I’ve acknowledged before that some people — including my father when he was alive — enjoy direct share investment. You’ve explained the appeal well.

A few comments:

• While non-direct investors — in KiwiSaver or other managed funds — don’t receive tax refunds, they are automatically taxed at their correct rate. Also, most funds are PIE funds, and that gives investors a tax advantage. Still, some people love to receive a tax refund cheque.
• I’m glad to see you have a good spread of shares, with 25 companies. Many direct investors are too undiversified.
• Individual direct investors often don’t do as well as those in managed funds. But I’ve yet to enjoy an afternoon tea put on by a managed fund!

AYou’re referring to my July 23 column, in which I wrote about recent Reserve Bank stress tests.

The researchers assumed house prices fell 55 per cent in Auckland and 40 per cent elsewhere, other property and gross domestic product also fell, and unemployment rose.

“In plain language, banks’ profits declined and so they had to stop paying dividends to their shareholders — but the banks remained solvent,” said a Reserve Bank spokesman. For more on this, see tinyurl.com/stresstestNZ.

In response to your letter, the spokesman says, “The stress tests covered the four Australian banks that account for 85 percent of the banking market. Rabobank was not specifically included in the stress tests of the banking system, but we did include it in stress tests of the banking system’s dairy lending.

“In late 2015, the five largest dairy lenders (which includes Rabobank) participated in a stress test that posed a scenario of sustained low milk prices and sharp falls in dairy land values.”

That report concludes, “the scenarios generate significant increases in loss rates that are manageable for the banking system as a whole. However, there is a risk that the lags involved in resolving stressed dairy assets are larger than reported, potentially creating an ongoing source of uncertainty for banks.”

Nevertheless, the spokesman says, “With any of these sort of queries we take care to point out that the likelihood of a bank failure is very low. The Reserve Bank of New Zealand regulates all banks in New Zealand and requires them to hold levels of capital and liquidity that act as a buffer against the likelihood of failure.”

On your comment about Europe, you’re not quite right about Rabobank NZ’s parent company. It’s a huge international bank based in the Netherlands.

How does the relationship with its parent affect the NZ bank? “The Rabobank parent company’s credit rating impacts the credit rating of Rabobank New Zealand, which affects the cost at which Rabobank New Zealand can raise funds,” says a spokeswoman. “Rabobank New Zealand also receives intra-group funding from its parent, which it could obtain from other sources.

“That said, Rabobank New Zealand Limited is a New Zealand-incorporated registered bank operating in its own right as a well-established, financially-robust business, under the Reserve Bank’s strict prudential supervision which applies to all New Zealand banks.”

Rabobank NZ has a Standard & Poors credit rating of A. This is lower than ANZ, ASB, BNZ and Westpac, all at AA minus, and Kiwibank, at A+. But an A rating is still regarded as “strong”.

AThere’s no list of countries. Generally, if you receive a pension run by an overseas government, that pension will be deducted from the amount of NZ Super you receive.

But there are exceptions. One is for government occupational pensions paid “purely for a period of employment with a government agency (that is, it is the equivalent of a private occupational pension, but the employer happens to be the government),” says a spokesman for the Ministry of Social Development.

Another — and this is relevant to you — is that “The Ministry does not currently directly deduct the portion of an overseas pension that is based on voluntary contributions.

“In order to receive New Zealand Superannuation as well as an overseas pension, we would require verification from the overseas agency that the pension, or some proportion of it, was based on voluntary contributions,” says the spokesman.

“Because every country calculates pension amounts in a different way, we cannot attempt to calculate the proportion of a pension that is voluntary. We have to rely on the paying country to tell us.”

It seems, then, that it probably makes sense for you to continue your contributions.

Nobody can guarantee a future government won’t change the rules. But if your contributions are subsidized or tax advantaged by your home country government, or if there’s some other incentive for you to contribute, it’s probably worth taking the risk.

It seems unlikely that that rule will be changed to your detriment — although no guarantees!