This article was published on 27 September 2014. Some information may be out of date.

Q&As

  • Take a lot of notice of KiwiSaver fees
  • Employees can easily contribute extra to KiwiSaver
  • When is a 25-year mortgage really a 20-year mortgage?
  • When can people who owe tax get away with not paying it?
  • Online tax calculator now includes ACC levy

QThere are many other people in my position at present so I hope you can find a wee spot in your column to answer.

I work for a major bank and they are winding up their staff superannuation scheme. They have given employees an offer of a 0.5 per cent rebate on the management fee of their KiwiSaver scheme, and I wonder how much weight I should place on this being a positive when making a decision on which provider to choose?

AFirstly, it’s a good idea for you, and everyone else in KiwiSaver, to take a lot of notice of fees.

The KiwiSaver Fund Finder on www.sorted.org.nz shows the wide range of fees being charged, as follows:

  • Defensive funds: 0.58 to 1.89 per cent.
  • Conservative funds: 0.75 to 1.95 per cent.
  • Balanced funds: 0.76 to 2.04 per cent.
  • Growth funds: 1.03 to 3.44 per cent.
  • Aggressive funds: 0.79 to 2.69 per cent.

In several cases, the highest fees are more than three times the lowest. How much does that matter?

Let’s look at someone who contributes a total of $250 a month into an investment with a return of 5 per cent a year.

With fees of 0.76 per cent — the lowest on a balanced KiwiSaver fund — the account would grow to $315,000 over 40 years. With fees of 2.04 per cent — the highest on a balanced fund — it would grow to only $230,000. That means a lot less travel in retirement.

Some people will tell you that providers who charge higher fees also give you higher returns, but I haven’t seen convincing evidence of that.

Okay, so what about your situation? I suggest you use the KiwiSaver Fund Finder to work out the best KiwiSaver provider and fund for you, zeroing in on the providers that charge the lowest fees.

Then compare your chosen fund’s fee with the bank’s fee, after the rebate. Go with whichever is cheaper.

A couple of footnotes:

  • It sounds as if you’re working for the same bank as the retired banker in last week’s column, who was too old to join KiwiSaver.
  • It’s interesting to note that a bank — which is no doubt trying to entice customers into its KiwiSaver scheme — has to offer a rebate to draw in its own employees!

QDo you think that any government would consider changing the KiwiSaver employee deduction rates?

Currently it is a huge jump from 4 to 8 per cent, and many people I have spoken to would increase their deductions if it went in 1 per cent increments, as they cannot afford the huge 4 per cent rise.

ALabour was planning to raise employee contribution rates, but that’s on the back burner now, at least for the time being.

However, employees aren’t limited to contributing 3, 4 or 8 per cent of their pay. You can contribute extra directly to your provider — either as lump sums or regular contributions. A good way would be to set up an automatic transfer from your bank account the day after every payday.

Ask your provider how to set this up. If they don’t make it easy, switch provider.

QI have a question that I’m hoping has a simple answer of “no”.

A couple of years ago we upgraded to a new house. We’d been in our previous house for five years, so were five years into our 25-year mortgage. We didn’t want to start again with another 25-year mortgage, so asked the bank for a 20-year mortgage, which they agreed to.

However, when we saw the documents, it was for a 25-year mortgage. We called the bank, who said that it was documented as a 25-year mortgage, but the payments were set as if it was a 20-year mortgage (I checked and this was correct). We were assured that the way the mortgage was set up was the same as if it was a 20-year term.

Anyway, every now and then I think about this, and wonder if it is correct, or will we end up paying more interest?

So, can you please answer for me: Is there any difference between a 20-year mortgage, and a 25-year mortgage paid off over 20 years?

ANo. Hope that ends your worrying.

QI’m writing about the ‘Taxing Situation’ section of your last column. I have re-read this twice and have still come to the conclusion this tells me, not just once, that if I think I owe the IRD money for any particular year, I don’t have to pay it, unless they catch me.

I quote: “if your calculation shows you owe tax, you don’t have to pay unless you request a PTS (Personal Tax Summary) or are selected for a PTS” (by IRD).

I sadly live in a world where I employ three accountants with various super powers at vastly different hourly rates and don’t claim to be an expert in how the IRD taxes people with simpler lives. I have even less idea how they tax me. This team of accountants works it out each year in such a way I am totally lost five minutes into the annual tax review and staring out the window or playing with my pen thinking about the weekend, while they talk imputations credits and accruals deferred.

However, I would be hugely surprised if the bloodhounds that stalk in the name of the IRD had decided to let off those who owe them each year, unless they were one of the unlucky 500,000 who got a PTS. I just can’t see the guy in the bad suit saying, “Mary, so you owe us $5,000. So what, we didn’t catch you, maybe next year you will get a PTS.”

Surely the principle of income tax is that citizens do their duty (read: are so terrified of the merciless thugs at the tax department) they pay their tax as due, and said merciless thugs select a random number of citizens to sample, grill, roast (audit) to check the population are complying.

Otherwise why would anyone pay tax? To do their duty? Come on! Those found cheating are put through the equivalent of 50 mediaeval torture devices to deter anyone else from defrauding the nation.

I realise the modern PC is trying to rid us of many of the old ways now considered barbarous, but even Helen Clark’s government would have water-boarded us faster than you can say “George Bush” in response to any mass attempt not to pay tax (unless possibly you are really rich and send it off in a wine box to the Pacific, and even then you might need a National Government).

Currently I am a bit concerned for your personal safety, as I would imagine a good “racking” or possibly even a brisk “burning at the stake” is still on the statute books for the treasonous who tell people not to pay their tax — despite what the disclaimer may have said at the bottom of their Herald column.

I suggest it might be best to check out this information further, before you suffer some kind of midnight rendition and brief show trial before only ever being heard of again in Nicky Hagar’s next book.

AOh no, not a Hagar book, please, anything but a Hagar book!

Thanks for your concern about my safety. But that quote from my last column is based on information that came from none other than Inland Revenue itself. I’ve got proof in the form of an email, if that’s still regarded as proof these days!

Still, after receiving your letter, I figured that perhaps we needed more clarification. So I got back to the department and asked, “Under what circumstances can people who realise they owe tax not pay it?”

The reply: “Everyone is obliged to pay the correct amount of tax. However, if a person identifies they may not have paid the correct amount and is not obligated to provide or receive an assessment (such as Personal Tax Summary), Inland Revenue cannot collect this.”

Typically, we’re talking about an employee who pays PAYE tax and — either through the calculator on ird.govt.nz or through a tax refund company — finds not enough has been withheld from their pay. In most cases, the tax they owe would be less than a few hundred dollars, often considerably less.

The Inland Revenue calculator can’t be used by the self-employed or people who have untaxed income. “The calculator advises them to file an IR3 and does not supply a final tax calculation,” says a spokesperson.

I also asked Inland Revenue for any comments about the somewhat less than flattering way you portray them in your letter.

“Inland Revenue plays a critical role in improving the economic and social wellbeing of New Zealanders,” says the spokesperson. “Our tax system relies on taxpayers to do the right thing, and most do.”

“We will support people to comply with their tax obligations and encourage anyone who may be finding this difficult to contact Inland Revenue as soon as possible so we can talk through the options available to them.”

In some circumstances, “if a person has met our serious hardship criteria and is unable to pay their tax obligation,” the person may end up not having to pay the full amount, she says.

It doesn’t sound quite like grilling, roasting, stake burning — or other ways of cooking dinner.

Oh, and don’t worry, I didn’t forward your name or details to the “merciless thugs” who, by the way, I’ve sometimes seen in pretty sharp suits.

QJust a follow-up note regarding the IRD’s free service online for calculating whether you qualify for a tax refund. I have happily used this system in the past, but got a nasty surprise this year.

The online summary does not include the cost of your ACC earner’s levy. I was not aware of this, and consequently was pleased to see that I would be receiving around $150 as a tax refund. I was disappointed to find that upon completing my PTS I was instead billed $250, which I have since found is due to the additional cost of the levy being added to the tax summary.

I know now to do my own calculations, including the cost of this levy in the future, and will hopefully not be stung again. Something to be aware of!

AThat must have been a nasty surprise. But Inland Revenue has now fixed the problem.

“The current calculator in myIR online service extracts the employer information including ACC levies from Inland Revenue’s tax system to complete the tax calculation,” says a spokesperson. “The previous calculator on the general website did not have this function; customers had to manually enter in all the employer information.”

If you want to check what’s going on, look at the earnings information section in your myIR account online. That will show any ACC levies the employer has deducted from your earnings, says the spokesperson.

“The online calculator will reflect in the final tax calculation any ACC levies not deducted by employers.”

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.