Kiwi Saver, Mary Holm financial writer and columnist

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Mary’s Q&A column appears in the Business section of the Weekend Herald. Mary was a finalist for the "Best Columnist – General" award for this column in the 2014 Canon Media Awards.

NZ Herald 5 May 2012

Q&As: Reader could do with a re-think
- Economist calls for in-depth look at NZ Super
- Easy way to make KiwiSaver contributions
- Should we use KiwiSaver money to repay student loans?
- How about starting to charge interest on student loans?
- 3 readers remember what tertiary tuition fees were like in their day

Question: "Tax is not a burden, it is a cost of living in a civilised society." Wrong Ms Socialist/Communist Mary, as our hard earnings went to non-contributor (doles, Housing NZ stayers), which was misused by left wing politicians for their votes.

The NZ system is hard for middle class professionals. We raised two children only to have a good education and life, but Polynesian and Maori women gave too many births to get handouts from our dollars.

When we were away from home for work to be able to pay for their doles from tax, they and their children break our house.

Answer: Pardon me for asking, but have you got a long nose? If so, I assume you are a liar, just like Pinocchio.

Unfair? Well how about you?

The word "prejudice" comes from the Latin praejudicium, which means previous judgment, according to Merriam-Webster. Prejudiced people pre-judge others, assuming that because they are a certain race, gender, or have a long nose, they must have certain characteristics.

You've not only pre-judged Polynesian and Maori women and their children, you've also pre-judged my politics. My lefty friends will be startled to see their University of Chicago-educated mate labelled socialist/communist - even more so when they see that you're judging me by something a reader said last week, not me!

But what you think of my politics doesn't matter. Your other thinking does.

As Atticus Finch said in To Kill A Mockingbird, "You never really understand a person until you consider things from his point of view - until you climb into his skin and walk around in it." Or if you prefer Elvis, "Walk a mile in my shoes".

Question: A friend scoffed when I said NZ Superannuation was "generous". I was referring to how it kept pensioners with little savings above the poverty line, and I knew it scored top marks among OECD countries for this.

My friend's view was that since it cost the State only 4.5 per cent of GDP, against an OECD average of 7 per cent, it was pretty mean. He reckons when the Boomers are in full receipt of it, at 8 per cent it will still be manageable on the tax base. He does want the pension age to move to 67 and then keep step with longevity change.

We are both pensioner economists and agree that our scheme is cheap to administer and we like the fairness of it - everyone gets it regardless of work history. But we also agree that it needs to change with the times, like everything else. Working lives, longevity and social conditions are so different from when the current scheme was embedded over 35 years ago.

For us, current public debates about the Australian scheme and KiwiSaver and Baby Boomers are shallow, as they are not informed by analysis and evaluations of costs and benefits of alternatives.

Just as we set up the ACC after the Woodhouse Commission, let's use the same process to examine superannuation options. And not just superannuation - pensioners are taking the lions' share of the exploding health budget and this should be factored in. We need to adopt a "pension system", not one scheme, which can flexibly serve the next 100 years.

I recommend Andrew Coleman's clear exposition of pension options that outlines the issues to consider, at www.tinyurl.com/colemanpensions

Meantime, I want my bank to call the fortnightly amount I receive "NZ Superannuation". The statement says "Welfare". Our pension is not welfare. It is universal, paid for by (almost) everybody, for everybody.

Answer: What do you know - two economists who actually agree on something!
I like the idea of Woodhouse II, on superannuation. Now there's a retirement project for you two.

Question: Re your recent column on a KiwiSaver fund not liking to receive a lump sum, the easiest approach is to pay the $1043 directly to IRD. They have a special tax code for this. I do it every year.

In fact it's even easier because my bank's internet banking system allows me to pay tax, select the type of tax (ie KiwiSaver) and it's done. Let the IRD sort out the payment to the fund.

Answer: For people who are not already set up to contribute directly to their KiwiSaver provider, this probably is a good idea.

I did have a couple of concerns at first. The first was that Inland Revenue might not necessarily know who a self-employed or non-employee's KiwiSaver provider was. But a spokesperson there has reassured me. "When a person enrols directly with a provider a registration is forwarded from the provider to Inland Revenue, and a link is set up between the member and the provider in our systems. Inland Revenue is then able to pass any government contributions or payments received on to the correct provider," she says.

My second concern was that it might take some time for the money to make it into a KiwiSaver account. This might matter if you were close to the June 30 tax credit cutoff date. But I was reassured again. "A payment is processed to the provider at the date it is received by Inland Revenue," says the spokesperson. "If a payment is received on 30 June it will process to the provider with an effective date of 30 June." I would still allow a few days, though.

Banks that accept payments to Inland Revenue include: ANZ, ASB, BankDirect, BNZ, Kiwibank, National Bank, TSB Bank and Westpac. The account type to use for voluntary KiwiSaver payments is KSS.

You can also make various types of tax payments using the same system.

Question: As KiwiSaver funds continue to rise, many people with student loans will find their KiwiSaver fund is at parity and then exceeds their student loan.

I think the government should allow a simple one-time transfer from your KiwiSaver account to IRD once you do reach parity to wipe your student loan in one fell swoop!

Whether it is a sound financial decision remains debatable but many, including me, would jump at the chance to clear their students loans for reasons, inter alia:

It clears that debt and wipes it as a stress/concern from your life.

Retirement for many recent graduates is still 30 to 40 years away, making repayment of the student loan a more pressing issue.

Take-home pay will substantially increase once you've removed the need to make compulsory student loan repayments from your wages.

It would also boost the Government's coffers. And it would cut down on admin. What do you reckon?

Answer: First, the negatives. We don't need more changes to KiwiSaver. Also, repaying a student loan from KiwiSaver would not be financially optimal. As long as the loan is interest-free, you are better off in the long haul repaying it slowly, and meanwhile earning returns in KiwiSaver.

However, you make some good psychological counter-arguments that are arguably just as important. And your idea would certainly help the government's Budget.

Question: I have been reading with interest the parents that are repaying their children's student loans.

I understand the necessity of the student loan system, to provide education to those who can't afford it.

However, it seems that it is becoming common practice for people who can afford it to borrow the money interest-free, and then on top of that they receive an early repayment discount - for paying back money they didn't need to borrow in the first place.

Time to bring back interest-bearing student loans, attach a cost to it, to bring back some efficiency.

Answer: I'm with you. Charging interest would also help graduates better understand debt.

But the change would have to be gradual and the interest rate low. And no interest should be charged during full-time study.

Before students rush to write protest letters, how about this: The government could use the interest earned to reduce tertiary fees, so the loans would be smaller in the first place?

The government said this week it will soon announce steps to tighten up the student loan and allowance system. Here's hoping they are steps in the right direction.

Question: You asked about past tertiary fees. I started University at Auckland in 1959. The basis of fees on U.E. Bursary were: first year, half fees paid under the bursary; second and third years, full fees paid for all "new" courses. Failed courses, the student paid full fees.

I was a part-time Accountancy student who commenced on 5 guineas a week ($10.50). The fees were quite high relative to the salaries earned. An extensive Google search has failed to produce any firm details of the amounts, which varied between faculties.

I basically paid my own way through university. My widowed mother paid my first year half fees and I was then "on my own". I paid board from day one.

Answer: Sounds as if fees in the late 1950s and early 1960s were pretty well taken care of - as long as you kept passing.

Question: In 1970 I enrolled at Canterbury University for a BA. The fees for that year were a bit over $90 - I paid a bit over $9. The rebate was because I had completed Higher School Leaving Certificate in my 6A year (that would be Year 13 now).

It was a huge incentive to stay on for the fifth year of high school, and complete the Bursary exams, even though University Entrance was gained in the 6th form. Nearly all students expecting to go to university did that fifth year.

Answer: Your $9 then is equivalent to $122 now. Cheap.

Question: For some unknown reason I still have a piece of paper dating back to when my son started university in 1988. This shows: University fees (Massey) $288; Students Association $ 99; Health Service $16.50, which totals $403.50, less fees grant (75 per cent) $216. So the total was $187.50.

Underneath is written: Study Grant $41 for 37 weeks; Accommodation $37.50; A Bursary $200.

So main costs were covered that year. On top of that would have been things like textbooks and stationery, entertainment etc and also travel with living in a non-university town. Also at that time vacation work was easy
to obtain and of course males could earn more.

Answer: Okay, that's got us covered for three periods. Thanks for the letters. I think we can conclude that tertiary fees weren't a great burden for most students for quite a few decades.

* Mary Holm is a freelance journalist, part-time university lecturer, member of the Financial Markets Authority board, director of the Banking Ombudsman Scheme, seminar presenter and bestselling author on personal finance. Her website is www.maryholm.com. 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 mary@maryholm.com or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.

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