Money advice for MPs new and old
Members of Parliament lead unique working lives, up for re-election or an unceremonious dumping, once every three years.
They’re generously paid but lead full-on work lives, leaving little time for financial planning.
Older MPs may take younger ones under their wing, but all face the same challenge as workers with humbler pay-packets: converting as much of their pay as they can into long-term wealth, in the face of an uncertain future.
SAVING
An MP’s starting salary is $160,024, and they get allowable expenses of up to $16,697 each year, but there’s a sliding scale rising for extra responsibilities, right up to the $459,739 paid to the prime minister.
Financial adviser Jeff Matthews says after tax, and living costs, MPs should save at least $45,000 of their salary.
The annual lift in their personal wealth should be higher, however, because MPs don’t have to put up with a measly three per cent superannuation contribution like ordinary workers get for KiwiSaver from their employers.
MPs get a 20 per cent contribution, but for every $2.50 they want of that, they must chip in $1 from their pay.
Matthews encourages new MPs to think like sportsmen.
‘‘You have got a limited number of overs, and there’s a run-rate you need to achieve per over,’’ he says.
That means having a plan and working out the run-rate you need to hit. Paying a fee for advice may not be a bad idea for many MPs, as they work long hours and may find little time for their personal interests.
Matthew’s sportsman analogy is apt. Like MPs, some rugby players are well-paid, but may have quite short careers.
The New Zealand Rugby Players Association makes financial advice available to players.
A survey of retired players showed those who had good financial advice when they were players were happy with their financial lives after the fulltime whistle had blown.
INVESTING
Investing the 20 per cent super contribution needs to be done with thought, Matthews says.
‘‘If you stick it in a defensive or extremely conservative fund, you are not going to achieve your goals. You need to be in at least a balanced, if not a growth fund.’’
There may be other fund choice considerations.
Green MP Julie Anne Genter invests with SuperLife’s ‘‘Ethica’’ fund to ensure her money isn’t invested in tobacco, guns or fossil fuels.
Genter says awareness of the precarious tenure of an MP led her to be cautious in her spending.
‘‘I’ve always put a lot aside in savings since I started the role.’’
HOUSES
Even on their high incomes, young MPs can find the housing market a challenge in their home constituencies.
Epsom MP David Seymour said he couldn’t afford a house in the part of Auckland he represents, where $2 million isn’t an uncommon price to pay for a family home.
Clearly Seymour, who earns around $190,000 a year, could afford a house in other Auckland suburbs, but he was making a valid point, says Genter.
Seymour has built wealth though share investing, though he says he spent the better parts of 2011 and 2014 without income campaigning for ACT.
‘‘Two years out of my 20s I donated to the political system.’’
His investing, his work history, and his personal prudency mean a sudden ejection from Parliament wouldn’t create a crisis.
With his ‘‘cash burn’’ rate – the cost of his lifestyle – he has money enough to look around for his next role without fear.
HOME LOANS
However, if Seymour went to get a loan, he would be viewed as a ‘‘contractor’’ by a bank, Mark Collins from Mike Pero Mortgages says.
New MPs might be in for a shock too.
‘‘You think ‘I can get a mortgage’ because you are on good coin for the first time in your life, so it’s not going to be a problem.’’
But banks may view a new MP as a contractor with no history of earnings and be cautious about lending to them, Collins says.
For MPs trying to buy their first home, that could mean having to get a loan from a non-mainstream bank, or a non-bank lender like Liberty. Or, perhaps a little embarrassingly, having their parents stand as guarantors for them.
FOLLOW THE LEADER
National MPs who entered Parliament when John Key became prime minister would have done wisely to align their financial interests to their leader’s.
Property and share owners enjoyed golden years of capital gains, as illustrated by the sale last month of Key’s Parnell mansion for $20m.
Seymour doesn’t believe MPs think that way.
‘‘I think it is probably actually natural.’’
‘‘I look at the National Party’s approach to housing in the last 10 years. The average Nat in the previous caucus had 2.2 properties, and their political prescription has been to do nothing that had any real influence on home building.’’
But he doesn’t believe it was a conscious conspiracy of propertyowning MPs.
‘‘I don’t believe they do that,’’ Seymour says.
Instead, housing affordability is just not front of mind for them.
SUDDEN LOSS OF INCOME
When Ma¯ori Party co-leader Marama Fox lost her seat, her thoughts were not for her lost income but for the cause she believed in.
Good former MPs will find themselves in demand when they leave Parliament.
‘‘You naturally build networks, and you grow your knowledge and skills,’’ Fox says.
Fox has worked on solutions to lift Ma¯ori housing ownership and quality.
Opportunities there and in broadcasting will provide an income, she says.
Committed former MPs may, however, find themselves unable to return to their old lives.
Fox doesn’t think she could go back to teaching.
‘‘I have to be my own boss going forward,’’ she says.
Her money life is a reminder that more communal attitudes to wealth exist among MPs.
‘‘I have 19 people living in my house. I support them all.’’
Many are her own children, now studying for degrees. It didn’t leave a lot of her salary to save.
‘‘I invest in my children. If I can’t afford to live in retirement, I will go and live with them.’’
‘‘For me it is about intergenerational wealth, about collective wealth.’’