NZ Herald 9 September 2017

AI also went into bat for your wife. And between us, we’ve won the game! More on that in a minute.

First, though, let’s look more closely at your grievance. Some people would say it’s no big deal. We’re talking about a few dollars a year for each KiwiSaver member.

But when I read your letter it didn’t feel right to me. A major message in recent financial markets legislation is the importance of transparency. New Zealand investors should know where their money comes from and where it goes to.

All eight of the other default KiwiSaver providers — AMP, ASB, BNZ, Booster, BT Funds, Fisher, Kiwi Wealth and Mercer — say they list interest from IRD as a separate contribution in their statements to investors. In most cases it is broken down as interest on employee contributions and on employer contributions. Presumably most non-default providers do something similar.

But ANZ, the biggest provider — with more than a quarter of all KiwiSaver members — doesn’t do that.

Instead it includes the money in investment performance — very slightly boosting growth in an investor’s savings.

“For the purposes of the transaction summary in the account statements sent to customers, the IR interest is currently categorised as investment performance across all schemes,” said an ANZ spokesman in my first email conversation with the bank.

He added that, “In ANZ’s three schemes this was approximately $4 per member in the last financial year.” What’s more, “It makes no difference to a customer’s closing balance whether IRD interest is categorised as investment performance or contributions.”

Okay. But why don’t you include it in contributions, I asked, the way other providers do?

“Because the purpose of the interest payment is to compensate for lost investment performance when the money is sitting with Inland Revenue.”

There’s some logic to that. But still, under ANZ’s system KiwiSaver members may not realise they get IRD interest.

Inland Revenue doesn’t seem too fussed about that.

“As the central administrator of KiwiSaver, Inland Revenue calculates interest on both members’ employee and employer contributions, and pays these amounts to scheme providers,” says an IRD spokesman.

“How any scheme provider deals with these interest payments is an oversight issue for the regulator of KiwiSaver scheme providers, so Inland Revenue has no comment on this matter.”

Nevertheless, I think every member of KiwiSaver should be aware that their savings gather interest — albeit currently at a low 0.91 per cent — while the money is parked at Inland Revenue for up to three months.

Asked if ANZ’s inclusion of interest in investment returns is misleading, the spokesman said, “We continually monitor customer feedback to ensure we’re displaying information in a way that meets member expectations. We’ll be seeking customer feedback on the categorisation of contributions — among other things — when we revamp our account statements this year.”

He added that, “Within the schemes’ financial statements and daily unit pricing the interest is correctly accounted for in both tax and MTC (member tax credit) claims.”

That’s good to know — but I don’t think it’s good enough. So I asked the Financial Markets Authority if they thought ANZ’s reporting to members was appropriate.

“While we didn’t find anything misleading in the way this was reported on individual statements, we did note that it’s not consistent with other reporting,” said an FMA spokesman. “ANZ have agreed to change it.”

I disagree about the “misleading” bit, but the main point is that change is coming.

ANZ confirmed this in a second email exchange. “We discussed with FMA how we categorised IRD interest, and our rationale for categorising it as investment performance. We acknowledge there were sound reasons for it to be in either category. FMA’s preference was to change, which we happily agreed to do from 31 March 2018.”

Does that mean that from then ANZ will include IRD interest as a line item in statements?, I asked.

“We’ll be working through how it appears in members’ statements,” was the reply.

By the way, any other readers eyeing the $50 compensation shouldn’t get too excited. “The contribution to the member’s account was to apologise for the confusion caused in previous emails, rather than how the IR interest is categorised in the account statement,” said the spokesman.

AI wonder how many other husbands would have thought along those lines 40 or 50 years ago. You hear so many stories of stay-at-home wives in that era being given grocery money, but with little financial freedom. I’m sure it still happens, but much less often.

You deserve an award for being a considerate forward thinker. And it seems your wife might deserve an award for being a great money manager.

AKiwiSaver has been curiously absent from the election campaign this year. Many would applaud that, given how many changes the scheme has undergone in its first ten years.

But as you say, gains in the value of shares, property or other investments made by KiwiSaver funds could be subject to a broad-based capital gains tax — if it were introduced.

Currently, I think all KiwiSaver funds — certainly all the mainstream ones — are portfolio investment entities or PIEs. That means they don’t pay tax on gains when they sell shares. Their New Zealand and Australian shares are taxed on dividends only — with imputation reducing that tax. Other overseas shares are taxed on what is called “deemed dividend income” of 5 per cent of their value, regardless of how many dividends are received and regardless of changes in share value.

Whether that will change, and if so how it will change, is anyone’s guess at this stage. Labour has said it would set up a tax working group after the election, and “a capital gains tax is one option the working group could look at.” But beyond ruling out CGT on family homes, Labour has not said what else might or might not be taxed.

I would really be surprised, though, if a tax change would leave members of KiwiSaver much worse off.

The scheme has more than 2.7 million members. And many other people — such as retirees — have family members in KiwiSaver. It would surely be political suicide to anger all of them.

ANobody can ever be sure politicians have finished doing anything. Even if we could count on the current ones sticking to their promises, they won’t always be in government.

As I said above, I wouldn’t expect KiwiSaver accounts to be hit hard by any tax changes — although other managed funds could perhaps be affected.

Regardless of all that, though, I wonder if you’re taking a bit more risk with your investments than you should be.

The New Zealand and international share markets have done well in recent years, but there’s absolutely no guarantee that will continue. A downturn at any time in the next few years wouldn’t be surprising.

Note, too, that bond investments — including the bond holdings of most KiwiSaver funds and other managed funds — are also vulnerable. If interest rates rise, the value of bonds held in the funds at the old lower interest rates will fall.

In short, everyone should be prepared for decreases in all KiwiSaver accounts except those invested in the lowest risk funds.

That shouldn’t be a big deal if you’re not planning to spend the money in the next few years. Stay put, and if the funds fall they will rise again. But if you’re expecting to spend some of your savings soon, I suggest you move that money into bank term deposits or a cash fund.

The money you expect to spend in, say, three to ten years could be in a balanced fund, and the longer-term money could be in a higher-risk fund, KiwiSaver or otherwise. That would give enough time for those investments to recover from a downturn.