This article was published on 9 August 2008. Some information may be out of date.

Q&As

  • Reader wants a list showing how KiwiSaver funds have performed, but I won’t oblige.
  • Why farmers mingle their work and personal expenses.
  • More reasons why taxing families as one unit might harm more than it helps.

QI read your articles regularly and thought: On the first anniversary of the introduction of Kiwis to the wonderful way to save, without working — KiwiSaver — how much of our money have they lost or made us in the first 12 months?

I am with Fisher Funds. I have deposited $4,620 (including the government subsidy), which is worth $4,614, so you can see my net position, after their fees.

As far as I can see this is a get rich quick scheme for providers, and a loss making venture for us poor KiwiSavers.

Can we have a column listing all the KiwiSaver providers, showing how much a $1 is worth now after one year? Can this be a yearly “warts and all showing” so we can all see the Real Picture? This idea will show who is the best KiwiSaver provider.

Many thanks, Mary.

ADon’t be too hasty with your thanks, because I’m afraid I won’t be providing such a list. And I hope nobody else does either — although I worry that some media outlets will see it as an easy story.

My reluctance has nothing to do with the fact that KiwiSaver’s first-year performance has been dismal. I’ve always said it’s foolish to judge retirement savings investments over a year, or even five years.

Investment funds are not like Olympic divers. You can’t look at their performance and decide what’s good and what isn’t. On the contrary, quite often a fund that did particularly well one year will do badly the next. That’s because the best performing funds are often the riskiest. They have really good years and really bad ones.

When considering KiwiSaver returns, it’s also important to note the boost you get from the government, and in some cases also an employer.

In your case, you’ve included the government’s $1,000 kick-start in the amount deposited. There will also have been $40 in fee subsidies.

If we look only at what you’ve put in — $3,580 — you’ve actually done very nicely in the year. The return on your money is at least 29 per cent, possibly much higher, depending on when you made your deposits.

In later years, as your KiwiSaver account balance grows, the tax credits, fee subsidies — and in some cases employer contributions — won’t have as big an influence on your returns. But they will still always help.

And you’ve got to admit that 29 per cent is pretty wonderful in such a bad year for investment markets.

As Fisher Funds boss Carmel Fisher notes, “the introduction of KiwiSaver unhappily coincided with one of the worst periods in investment markets globally. Few share schemes will have escaped the damage of the last year, as evidenced by poor performance reports by even the most seasoned international investors.

“The only way to have avoided the market rout would have been to have selected a non-growth or low-growth scheme (i.e fixed interest, cash, etc.). However, investors who signed up to a growth scheme clearly did so because they wanted to maximise their fund’s long-term growth prospects.

“One positive aspect of the market downturn (and it is always difficult to identify positives when you are in the eye of the storm) is that prices have now declined to a point where KiwiSaver members can now invest in great businesses around the world at unprecedented prices, providing real opportunities to grow the value of their capital as share prices move closer to the fundamental value of those businesses.”

Or, as one reader put it in a recent letter, “I am still happy with my KiwiSaver progress. As the market downturn continues my contributions are buying more and more units in my fund.”

Fisher continues: “It is really important that investors focus on the future, otherwise when markets do return to normality, they will miss out on what can be fast, rewarding recoveries.

“In the meantime, even though it may not feel like it right now, investing at lower prices can really help over the long term. The really hard part is for members to stay disciplined in focussing on the long term.”

I would add that if you’ve found it just too hard to cope with the poor first-year performance, switch now to a much less volatile KiwiSaver fund. You won’t have lost much in only a year. In the long run, though, your savings probably won’t grow so big.

QVery interesting letter in last week’s column about farmers treating their garden purchases as business expenses, etc.

Does the writer consider that the house goes with the farm? Very few farmers are able to stay in that home after retirement — the house is needed for the workers.

Some may subdivide the section off — a lengthy and not always successful process — and stay even if the farm is sold, thereby devaluing the farm as it has not enough houses for the required number of workers. So not only is the farmer leaving the job of a lifetime, he also must move — two major events in life.

The improvements he has made to his property will never affect the price he can ask for his farm — that is dollars per kg milksolids.

Most farmers take out of the business only what they need to spend, few owners pay themselves a salary.

There are also very few businesses where the employees have so much to do with the business owner, living and working at close quarters 24/7. This situation, as you will see from the published letter, needs tolerance and understanding on both sides — not always achieved.

The point of this letter: The house belongs to the farm — not the farmer.

AThanks for giving us townies another perspective on this.

Farming is clearly a way of life rather than just a job. And what you say does, perhaps, put deducting garden expenses in a different light.

Still, nobody can claim that it’s okay for farmers — or anyone else — to transfer income to a private account, and not pay tax on it, which last week’s correspondent also described.

QI don’t want to flog a dead horse, so perhaps you could guide me to an archive that has your earlier columns describing taxing families as one unit? Perhaps you have some better arguments there than the one you ran on Saturday.

You included the example: Consider Sam and Sue, both working full-time because that’s the only way to feed and clothe their children, and each making $30,000. Is it fair that they pay the same total tax as Joe, who makes $60,000 while Jane stays home to look after their children?

To me the answer seems to be “of course”, but I guess it depends on one’s view of the value of stay-at-home parents.

I’m not some right-wing “family-first” nutter, but I do have a couple of small kids and I did just come back after several years in the US, where “married filing jointly” is a tax option. The lack of this option here is just one of the many reasons it’s been so expensive to come back.

Note, in the US, the cost of child-care for the purpose of attending work is tax-deductible, so perhaps that would help balance out your example.

AI agree that New Zealand should have more tax deductibility of child care costs. But let’s not look to the US for how to run a tax system. When I lived there, wage earners spent many hours doing their tax return each year. New Zealand’s simpler system is much better.

What’s more, several of my American friends chose to live together out of wedlock solely because the “marriage tax” — the higher tax they would pay if wed — would have cost them several thousand dollars a year.

Our tax system could certainly be improved. But let’s not solve some problems whilst introducing others.

On the value of stay-at-home parents, I’m not knocking it. My point last week was that Joe and Jane have an undeniably easier life, so surely it’s fair to tax Sam and Sue more lightly.

You want better arguments? In this column on October 15 2005 I gave a similar example to Joe, Jane, Sam and Sue, but with total family incomes of $80,000. I then added the following (with names changed to go with our current example):

“How about Mr Widower down the road, making $80,000 and raising three children? He has nobody to split his income with, so he is stuck paying a full $6,330 more in tax than Joe and Jane. That’s a big extra burden to add to the difficulties of raising children alone.

“Then, across the street, there’s Ms Single, with no young children, also on $80,000. Why shouldn’t she pay higher tax? Perhaps because she is supporting an ageing parent or two, or a disabled adult child.

“Another issue: What happens when Joe and Jane’s children reach high school, and Jane is keen to use her qualifications by taking a part-time job, earning $20,000.

“Under the current system, she would pay $3,630 in tax. But under your system, her income would be added to her husband’s, giving us $100,000 to be split between the spouses. Total family tax would increase by $6,600 because she was working. Such a high tax rate on a low income will hardly encourage her to work. New Zealand might lose her skills.

“There are so many different circumstances. The minute the tax system starts to help people in one set of circumstances, it hurts other, sometimes more deserving people.”

For more on the debate, see this column through October and the first half of November 2005 — six weeks of to-ing and fro-ing, which is why I don’t want to repeat it all less than three years later. You can read it if you go to www.maryholm.com and do a search on “family”.

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.