NZ Herald 7 September 2024

AYou may well be right about people’s expectations. And this issue doesn’t apply just to retired people, but everyone at every age. Nor does it apply only to KiwiSaver investments. Thanks for raising an important point.

Firstly, what happens to someone’s KiwiSaver account when they die?

“As a KiwiSaver account is held individually, it becomes part of a member’s estate after their passing (in the same way as other assets do),” says an ANZ spokesperson. “How the member’s KiwiSaver savings can be subsequently distributed depends on the value of the KiwiSaver account, and then if there is a will in place.

“If under $15,000, an authorised person such as the surviving partner, children or someone caring for their children, can apply for the funds without requiring probate or letters of administration.

“If over $15,000, the route to getting access to the savings takes longer. If there is a will, a grant of probate is required (a document issued by the High Court certifying the will’s validity and confirming the appointment of an executor to deal with the deceased’s estate in line with the will),” says the spokesperson. “Ideally the will should clearly say who should receive the assets, like the KiwiSaver savings, and provide clear instructions for distributing the assets.

“If there is no will, ‘letters of administration’ are required, which appoint an administrator to deal with the deceased’s estate according to the rules of intestacy (when there is no will).”

He adds that ANZ Investments has not heard of cases where the investor’s funds have been held for an extended period. “Each case will be fact specific, but for various reasons probate may take time to obtain e.g. issues with proving the will, the court process or volumes. Once probate is granted solicitors may hold on to funds for a period of time, e.g. 6 months, in case any other legal claims may arise on the deceased estate. There’s a section in the Administration Act 1969, s47, that relates to this.”

There’s a clear message here. I suggest every couple reading this talks today about how each of them would cope financially if the other person dies. Ideally, each partner has enough money in their own name to manage expenses while the estate is being sorted.

What about joint accounts? “If a deceased customer had a joint personal account, the account will usually be transferred into the remaining account holder’s name, or names if there is more than one. This step will be more complicated if there is debt (particularly a loan secured by a mortgage over a property),” says the Banking Ombudsman Scheme.

That sounds okay unless the joint account includes a mortgage. But it would still be best to have some cash held separately by each partner, to keep things simple immediately after a death.

Note that even if a KiwiSaver member is younger than 65 when they die, the money in their account will be available for their heirs to spend as soon as they get it. But, as we’ve seen, that might take quite a few months.

ASorry to read your sad news. It sounds as if you don’t need the money straight away, which is good. But yes, your husband’s KiwiSaver account will have to be closed.

However, there’s nothing to stop you opening your own KiwiSaver account and putting the money into it — or adding to your KiwiSaver if you already have one. Anyone can open an account at any age, and you can then contribute — or not — in any way that suits you. If you’re under 65, each year the government will put in $1 for every $2 you put in, up to a maximum of $521 if you contribute $1,042 or more.

AYou’re right. Over the long run we expect the growth of a KiwiSaver fund balance — or any other similar investment — to get faster and faster, because of compounding returns. Each year you benefit from not just returns made on the fund’s investments, but also returns on the retained earnings on the previous years’ investments.

The return you made back in your first year in KiwiSaver has since been reinvested 16 times, growing larger each year — except in loss years, but they’re not very common.

So, theoretically, you should see a curve that gets steeper and steeper. That’s especially true in an investment in which you’re making regular contributions. And yes, in a higher-risk fund the slope should be steeper than in a conservative fund, because of the higher average returns.

However, it can take a long time for the increasing steepness to become obvious. Higher-risk funds are more volatile, and yours is no exception. The Smart Investor tool on sorted.org.nz tells us that your fund’s returns since 2015 have been: 13.87, 1.77, 10.65, 7.68, 7.71, minus 3.73, 31.55, 4.56, minus 3.84 and 16.46 per cent. All over the place. And, the tool shows us, average returns on all KiwiSaver aggressive funds have been similarly wobbly.

That can certainly muck up a curve.

But hang about, and by the time another 17 years have passed you’ll will probably see increasing steepness, or at least sort of.

Note, though, that Smart Investor tells us the fees on your fund are 1.65 per cent, compared with 1.03 per cent on the average aggressive KiwiSaver fund. That makes a difference over time. I would move to a lower-fee fund.

AYou’re right that a non-KiwiSaver investment for a grandchild has the advantage of being available for any spending, whereas, in most circumstances, KiwiSaver can be spent only on a first home or in retirement.

Some people like that restriction, though. Who knows what an angelic three-year-old will be like at 21? She may blow the lot on stuff you have no desire to fund!

In either type of investment, the money will grow with compounding interest. But in KiwiSaver, that can be boosted when the child reaches 18 if someone — they, their parents or you perhaps — puts in $20 a week or $1,042 a year, to get the maximum government contribution, as described in today’s second Q&A.

Also, if the young person works — part-time or full-time — after 18, and they contribute to their KiwiSaver account, their employer will also contribute. And the child is then set up with, hopefully, a lifetime savings habit.

One more comment: If the young person doesn’t ever buy a first home, KiwiSaver is certainly a very long-term prospect. You’re highly unlikely to be around when they turn 65 and start spending the money, but I bet they will be grateful you got the ball rolling all those years ago. Compounding is very powerful over 62 years.

AGosh, that’s pretty negative, assuming a tenant won’t be able to heat their home enough to take advantage of insulation. Even if they have no heaters on, surely the heat from sun coming through a window, and from cooking and so on would make the inside somewhat warmer than the outside air. And insulation would help to keep that warmth inside.

On the deductibility of the costs of upgrading a property, you’re right. In my question to Inland Revenue I didn’t specify that the house was not yet rented out, and I should have. Apologies. Says an IRD spokesperson, “For newly acquired property, generally the expenditure incurred to bring the property up to the Healthy Homes standards and suitable for its intended use as a rental property will form part of the acquisition cost of the property and will not be deductible.”

Please note that I have not said landlords are greedy. What I said two weeks ago, in response to a correspondent writing about the greedy landlord image, was: “If landlords don’t want to be called greedy, it would really help their image if they took pride in upgrading their properties to make their tenants’ lives better, rather than complaining about the costs. I should add that there are many landlords who do, indeed, like to treat their tenants well.”

I agree that people in the financial investment industry are also a mixed bag, with some caring more about investors than others.

It reminds me of a story, supposedly from the late 1800s in New York. Some visitors to the city were admiring the yachts of the richest Wall Street brokers, when one suddenly asked, “Where are the customers’ yachts?”

His question became the title of a very successful book by Fred Schwed about Wall Street excesses, first published in 1940 and reprinted since.