This article was published on 7 July 2007. Some information may be out of date.

Q&As

  • What happens to KiwiSaver accounts in a divorce?
  • How KiwiSaver might affect NZ Super, and what you should do about it.
  • A source of basic KiwiSaver information
  • The NZ share market index that includes dividends has been misleading in the past. How much does it matter?

QRegarding KiwiSaver: Imagine a not unlikely scenario where a couple both decide to join KiwiSaver — one, in full employment, contributing 4 per cent of their wages while the other, a stay-at-home mum (or dad), contributes the bare minimum.

After, say, 30 years, the two accounts will have accrued vastly different amounts towards their combined retirement.

What happens to the monies if the couple decide, not amicably, to separate prior to turning 65?

AWhether or not they are 65, the money in both KiwiSaver accounts — to the extent it was saved while the couple was married — would go into the pool of assets to be divided between them.

And, as we’ve all seen, there are many different ways relationship property can be distributed.

Lawyers say the court would usually try to leave the wife’s account with her and the husband’s account with him. And if the value of one spouse’s account were smaller, she or he would receive other assets to compensate for that.

But if there weren’t enough other assets to even things up, some money from the bigger KiwiSaver account might be given to the other spouse. Sounds fair to me.

QMary, I feel you have failed to address one serious risk factor with KiwiSaver: Can people joining KiwiSaver now be assured that their future payouts will not be deducted from their NZ Super entitlements?

After all, that is happening right now to those New Zealand residents who have made contributions into personal accounts of KiwiSaver-style workplace retirement schemes overseas (like LeCoqSaver in France, EagleSaver in the States etc.) The Government effectively confiscates these personal retirement savings.

Helen Clark has given verbal assurances that KiwiSaver payouts would be on top of NZ Super, but can we trust politicians not to change the rules in the future?

As long as the discrimination against overseas KiwiSavers goes on, people would be well advised to think twice before joining.

AMy first reaction to your letter was: Oh no, not another complaint about immigrants being unable to receive the full NZ Super as well as superannuation payments from the government-run scheme in their country of origin!

I know, I know… the systems in your original countries were different from our system. In many cases, you made contributions out of your pay over the years, and fully expected to get super payments in retirement based on that.

Then you moved to New Zealand, and were told we pay NZ Super to everyone. So you expected to receive money from both schemes, only to find you don’t.

Some people say they were misled about that before coming to this country. If that’s the case, you have every right to complain to whomever gave you the wrong information.

But I’m sympathetic to the following argument: While New Zealanders don’t directly contribute to a scheme that pays them NZ Super in retirement, most do pay taxes throughout much of their lives. And a fair chunk of that money goes towards paying NZ Super to current retired people.

In the end, that’s not very different from contributing to a scheme that pays you back in retirement.

So it’s not clear that people who spent part of their working lives in other countries should end up getting more retirement income — from one government or another — than people who spent all their working lives in New Zealand.

Other readers: Please don’t flood me with letters debating this. We’ve been there and done that in this column, some time ago. But your letter, and a couple of other similar ones, relates all this to KiwiSaver, which is new.

And the answer to your questions about what politicians might do in future has to be: Nobody knows.

If, indeed, future politicians decided to deduct KiwiSaver income from NZ Super, people who were in KiwiSaver would regret having made sacrifices during their working life only to end up no better off.

But what politician would do that? Think of the anti-saving message that would send to everyone still in the work force.

It’s certainly possible that NZ Super could be changed so that those on higher incomes get less. But — because of the message issue — surely they will always still be better off than those on lower incomes.

So which do you prefer:

  • Being in KiwiSaver and ending up better off, and with a nest egg in your own name that nobody can take away from you, or
  • Staying out of KiwiSaver, and perhaps ending up with higher NZ Super payments but lower income over all, and much less control over your situation?

PS I love “LeCoqSaver” and “EagleSaver”!

QUICK KIWISAVER INFO

The huge number of questions coming in about KiwiSaver reveal that many people don’t yet understand the basics of the scheme. But I don’t want to keep repeating the basics because that will bore other readers.

To solve this, I’ve decided to list the rules and incentives, taken from my new book, “KiwiSaver: How to make it work for you”, on www.maryholm.com. Click on the KiwiSaver book page and scroll to the bottom. You might very well find the answer to your question there. [This page has been removed from the website. Visit kiwisaver.govt.nz for up-to-date information.]

QWhile there is nothing wrong with the concept of a properly constructed gross share market index (“gross” means including dividends), it is unfortunate that the NZX deliberately misrepresents the performance of its gross index.

Whether the index counts dividends as gross or net of imputation credits is okay, so long as the basis is disclosed (do you know which basis they use?).

But it is readily apparent that imputation credits should not be treated as being reinvested. If you receive a dividend cheque for $67 and the dividend has imputation credits of $33 attached, you can only reinvest $67, not $100 as the gross index assumed for most of its history.

They have stopped counting a supposed reinvestment of imputation credits, but they still allowed you to publish a misleading graph with your column two weeks ago.

Your public need to know that the gross index is biased upwards for most of its history because of a simple mathematical error, and the NZX has not published a correct version. I would like to know from which point we can trust the NZX gross index?

AYou’re quite right that the NZX’s gross indexes included reinvestment of imputation credits — until October 1, 2005.

And I agree with you that that is misleading, and that the graph we ran with this column therefore made the performance of the New Zealand stock market look somewhat stronger than most people would argue it actually was. Sorry.

I didn’t realise that at the time. Nor did the NZX person who sent me the graph, says the exchange. We used that index simply because numbers were available back before the 1987 market crash.

NZX index manager Darren Chin has acknowledged that exchange employees should have known about the issue, although “the knowledge is reasonably specialised, so not everyone is aware of it.”

And he denies that the NZX deliberately misled anyone. The fact that the index used to include imputation credit reinvestment and no longer does has always been publicly disclosed in the “index methodology”, he says. There is information about this on the www.nzx.com website.

The exchange has also made available a gross NZX50 index that excluded imputation credit reinvestment, back to 2000, although that is not the “public” index, says Chin.

How much does all this matter? Our graph shows the performance of the NZX50 capital index — the one without dividends, as well as the two indexes with dividends — one including imputation credit reinvestment and the other not. They go back to the end of 2000, as much data as are available.

Over the period:

  • The capital index has risen 67 per cent in six and a half years (8 per cent a year on average).
  • The gross index without imputation credit reinvestment has risen 129 per cent (14 per cent a year).
  • The gross index with imputation credit reinvestment has risen 155 per cent (16 per cent a year).

So, let’s to go back to the original issue: whether the New Zealand share market is still lower than in the dizzy heights of pre-crash 1987.

If we look at a capital index, it is indeed a bit lower. But, as I’ve argued in this column recently, it’s more accurate to look at a gross index.

And while we haven’t got a gross index without imputation credit reinvestment going back that far, if we extrapolate from the numbers above, it’s clear that such an index would show the market has risen considerably since early 1987 — albeit not as high as in the graph two weeks ago.

By the way, we can’t put a scale on today’s graph as each index was at a different level in 2000, and for easy comparison we re-set them all to the same starting point.

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.