NZ Herald 31 January 2015

AAt first glance it does seem mean. And it’s surprising that nobody out of your employer, your provider or Inland Revenue realised you were ineligible to join.

But mistakes happen, and I suppose a government department can’t start bending the rules. That would encourage other people to try to enrol after they were 65, planning to say if they were caught that they were also enrolled “accidentally”, and asking Inland Revenue to turn a blind eye. It could all get messy.

However, all is not lost. I suggest you put the $3900 in a savings account or, if you’re happy with your KiwiSaver fund, ask ASB if you can put the money into a similar non-KiwiSaver fund. Then set up an automatic transfer from your bank account into that fund of the amount you’ve been contributing to KiwiSaver.

While you’re at it, ask your employer if it will contribute to that fund for you. It’s already been putting the money into KiwiSaver, so it might be willing to do that.

How cheeky are you? If Inland Revenue has given you $3900 out of the $10,000 balance, it may have also given back to your employer a similar amount — reflecting the contributions it made. You might ask your boss if they could put that money into your new account. After all, it seems to me that your employer must take some of the blame for this situation.

With your own contributions and, hopefully, employer contributions, your account can still grow nicely until you retire, even without government contributions.

On the bright side, it makes a great naughty boy story: “I was expelled from KiwiSaver!”

AFirstly, property is also risky. In any investment in which prices can rise rapidly, prices can also fall. It happened to Auckland property just a few years back.

While shares are generally thought to be riskier than property, if you borrow to invest in property — which most people do — it can be riskier than a share investment with no borrowing.

I should qualify that, though, by saying that I’m talking about investing in shares my way — over long periods and holding lots of different shares or using a diversified share fund. If you’re thinking of buying just a few shares and trading frequently, that’s a high-risk game.

On to your question. While Auckland property prices have risen a lot lately, so have share prices. Where will either market go next? Lots of people have opinions, but nobody knows.

What to do, then, if you’re willing to take some risk with your investments?:

• Spread your money around — with some in property and some in shares. And preferably more than one property and many shares.
• Don’t trade frequently. Trading expenses, including tax on your gains, eat into your profits. It’s a rare, lucky person who does better trading than if they had bought and held.
• Commit to leaving your money in shares and/or property for at least ten years, regardless of what the markets do. Too many people bail out of investments when markets fall — the very worst time to sell.

If you expect to spend your investment money in less than ten years, it’s safer to go with a lower-risk investment, such as high-quality corporate bonds, a bond fund or a balanced fund.

AMy primary concern is quite different. You’re planning to put money you expect to spend soon in a fund invested mainly in shares. Yikes!

You acknowledge that the recent strong performance of shares could come to an end. But how would you feel if your money halved? I’m not saying that will happen. It could be the opposite. As I said in the previous Q&A, it’s anyone’s guess where a share market will go in the short term. But — especially after a sustained period of growth like the one we’ve had — only a fool would rule out a plunge.

If you’ve decided not to buy a house for at least six months, I suggest you take two steps:

• Transfer your bank money from a savings account into a six-month term deposit, if you can get higher interest. Check www.interest.co.nz or www.depositrates.co.nz for which of the major banks is offering the best rate. When you’re closer to buying, move back to a savings account.
• Move your KiwiSaver money into a low-risk fund. Your provider will probably offer one. If not, switch to another provider.

By all means feel good about how well your KiwiSaver account has done lately, but don’t push your luck!

If you follow my suggestions, there won’t be an issue about access to money for your 20 per cent house deposit, as you can use the bank money.

However, if you’re a risk lover and decide to put the lot in KiwiSaver despite my warning, there shouldn’t be a problem with the deposit anyway.

As you say, your KiwiSaver provider can’t release your funds until you have an unconditional sales agreement. Even then, the money has to go into a solicitor’s trust account until settlement date.

But in the meantime you can ask your provider for a letter saying how much money you will be able to withdraw for your first home. A provider tells me that seems to always satisfy the main mortgage lenders, and they will go ahead with setting up a mortgage.

By the way, you might not realise that there are changes coming up soon to both aspects of KiwiSaver assistance for first home buyers, as follows:

• The savings withdrawal — which applies to everyone in KiwiSaver for at least three years, regardless of income, house price, contribution level or size of deposit. If you apply after April 1, you will be able to take out not only employee and employer contributions and returns earned in the account, but also all the tax credits you’ve received. The only money that must remain in the account will be the $1000 kick-start.
• The subsidy of $3000 after three years in KiwiSaver, rising to $5000 after five or more years, for those who qualify. From April 1, the subsidy will double if you buy a newly built home. Also, the house price caps rise to $550,000 in Auckland, $450,000 in Wellington, Christchurch and some other areas, and $350,000 elsewhere.

For the subsidy — but not the withdrawal — there are income caps, set at $80,000 for one buyer and $120,000 for two or more buyers. Also, you have to have contributed at least a minimum percentage of your income, and you need a deposit of at least 10 per cent of the house price. For details, see www.my-first-home.co.nz.

Footnote: You might be surprised to learn that I almost approve of your comment about ignoring your quarterly statements. While it’s good to note your progress, don’t take too much notice of how your fund has performed over three months or even a year or two — unless it charges high fees or its returns are way below other funds of similar risk, as shown in the KiwiSaver Fund Finder on www.sorted.org.nz.

Performances are volatile, especially in higher risk funds. Pay far more heed to how well you’ve done over the longest period for which you’re given information.