Sack the inaccurate journalists
A reader reports that she and her family “were quite astounded to find you recommend (KiwiSaver) so unreservedly.”
“I’ve read several articles recently by other journalists, who have pointed out that one’s savings could well be handled — in the interim before one retires — so poorly that there could be none left to collect on retirement.
“Although these agencies might be Government-approved, they would give none of the security that the State-owned NZ Superannuation Fund has.
“Apart from the above, there is also the aspect that the KiwiSaver scheme would discourage the wage/salary earner from giving debt reduction first priority; surely a wise move, before committing to a regular savings programme.”
My response: Those other journalists should be sacked. I suppose we could come up with a scenario in which everyone who works for a KiwiSaver provider plots to take the money and run to Bolivia. But — not being a writer of crime fiction — I’m struggling.
What about the investments the providers make?
All the mainstream KiwiSaver funds will put your money into a wide range of whatever they are investing in — lots of different bonds, shares, properties and so on. If they all became worthless we would have more to worry about more than our KiwiSaver accounts!
Sure there will be times, especially in funds that invest heavily in shares, when most share prices will fall. But generally speaking KiwiSavers should not be in those funds unless they are at least ten years away from taking their money out. In that time, the funds will almost certainly regain the lost ground.
If you don’t want to take that sort of risk, go with a lower risk fund.
Fees are another issue. They have badly eaten into some fund returns in the past. But the government is monitoring KiwiSaver fees, and websites like www.sorted.org.nz are planning to publish fee comparisons. Look for a lower-fee fund.
The fact is, though, that even in higher-fee funds, the government incentives will boost KiwiSaver accounts so much that investors will still do pretty well.
Debt reduction? In the past, it was always a good first move. But, again, the KiwiSaver incentives are large enough that you will retire richer if you are in KiwiSaver than if you put those dollars into repaying your mortgage faster.
The same goes, in many cases, with credit card and other high-interest debt. I’m suggesting that people with lots of that debt join KiwiSaver and contribute for a year. Then go on a contributions holiday and put the money that was going into KiwiSaver into debt reduction.
That gets you the $1,000 kick-start plus a year’s worth of tax credits and perhaps employer contributions. And, perhaps more importantly, a habit of putting money aside rather than spending it.
WIN A BOOK:
Random House, publishers of my new little red book, “KiwiSaver: How to make it work for you”, are giving away 30 copies to readers of this column around New Zealand.
To be in the draw, tell me why you should win in 40 words or less. Be funny, frank or flowery. Winners’ names and towns will be published here four weeks from now, along with a selection of winning entries.
Email your entry to [email protected], with “Column giveaway” in the subject line, by Friday August 3rd, 2007.
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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.