KiwiSaver — pass it on faster
There are ways to get your money into the provider’s hands more quickly
I work as an accountant for a KiwiSaver provider.
The system to get KiwiSaver contributions and deductions invested by your provider is slow, as the money is transferred via the IRD.
All KiwiSaver and other deductions such as PAYE are held by the employer and normally paid to the IRD on the 20th of the month following. This is then paid to the KiwiSaver fund a week or two later. This means that the funds are not invested for up to two months after the pay day.
Employees need to pay the minimum through payroll (to get the matched amount from the employer). However, if employees want to contribute more than 3 per cent (laudable), I recommend they do it by direct payment to their provider. Most payroll systems can facilitate this as a second bank account and pay it each cycle.
By paying the excess directly, you are invested almost immediately.
Another option: most KiwiSaver providers will have a managed fund with similar investment strategies to your KiwiSaver, but you are not tied in until retirement. Or you could consider an entirely different strategy/risk (or even provider), thus adding diversification.
A: Thanks for some insider tips, all of which make good sense.
Employees’ KiwiSaver money does, indeed, take a long time to wend its way into KiwiSaver funds.
So it’s a great idea to ask your employer to send extra contributions directly to your provider. If your employer can’t cope with that, you can set up an automatic transfer to your provider out of your bank account the pay after your pay comes in.
Your suggestion of putting extra savings in a non-KiwiSaver fund is good for most people, as you say, because they can withdraw the money at any time. However, for those who might then be tempted to squander the money, tying it up in KiwiSaver works well.
Goodbye to debt
Q: I will be 65 soon and am considering repaying my authorised overdraft of $32,000 from my KiwiSaver fund, as currently I'm paying about 8 per cent or about $250 per month in interest charges.
I only have about $36,000 in my fund, but plan to keep working for the next 8-12 years — health permitting — to repay a joint mortgage loan and have some savings when my wife retires in about 12 years.
I don't like the idea of paying interest and, apart from the overdraft and mortgage loan, do not have any other debts.
A: It’s a great plan. The way to weigh this up is to compare the interest you’re paying with the return you’re likely to get in your KiwiSaver fund.
If they were the same, you would improve your wealth equally by paying off an 8 per cent debt or by earning 8 per cent, after fees and tax, in the investment.
But will you earn that much in KiwiSaver? If it’s a higher-risk fund, you might if you’re lucky. But your return could be considerably lower.
In any case, I wouldn’t recommend such a fund for someone thinking of withdrawing much of their money soon. It’s wiser to be in a lowrisk fund then — to avoid the possibility of a sharemarket slump right when you want to withdraw. And low-risk funds tend to have lower returns.
So getting rid of the debt is a much better bet.
There’s another factor here too. You dislike debt — which is really good. So paying it off will add to your happiness. Please do everything you can to stop running up debt again.
● Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions 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 mary@maryholm.com. 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.
Employees’ KiwiSaver money does, indeed, take a long time to wend its way into KiwiSaver funds.