In my case, we own and live in separate homes, occasionally sleep over, go on holiday together. Mostly eat dinner at one or other’s place.
Our finances are totally separate. We will buy each other lunch or dinner on an ad hoc basis. My assets are not in a trust, but my friend’s are. He has KiwiSaver of about $200,000 and mine is about $50,000 at present.
He’s a he and I’m a woman! I suspect that still makes a difference even today!
When he inevitably gets put in a rest home with no real assets due to the trust, will anyone be coming after my savings? Or my term deposits or house?
I hear opting-out agreements like a prenuptial won’t stand up.
A: This is a tricky issue, and your situation is becoming increasingly common, as more and more 65-pluses have what might be called “live-apartners”.
Your summary of the law is correct, Graham Allpress of the Ministry of Social Development (MSD) says.
“When a person applies for assistance from MSD, we need to consider their relationship status and other family circumstances.
“MSD’s role is to check whether people qualify for a residential care subsidy by performing a ‘financial means assessment’.
“To get the subsidy, a person’s income and assets must be under a certain amount. If they are in a relationship, the combined income and assets of both parties must be under a certain amount.”
There are two issues for you and your partner. One is whether you are “in a relationship” for these purposes? But there are also questions around your partner’s use of a trust.
“A trust can have an impact on a Residential Care Subsidy, because clients need to use the resources available to them before seeking financial assistance,” Allpress says. “We might expect a trust to provide resources to the client to help pay for their care.” For more on this, see tinyurl.com/MSDTrusts.
This seems fair to both you and taxpayers in general. It doesn’t seem right for people to use government funding for their care while they have money in trusts.
What about your savings?
Allpress says the Ministry of Social Development’s position is based on “the notion that for a person who is married, or living in the nature of marriage, spouses and de facto partners owe primary obligations of support to each other, and that the state’s support obligations are secondary”.
When considering whether a client is in a relationship, Work and Income looks at the couple’s emotional commitment and financial interdependence.
Emotional commitment includes:
“client perception – the client and the other adult see their relationship as a relationship in the nature of marriage or civil union; they consider the relationship is likely to continue;“public perception – they are viewed as a couple by their community (this may include their family, local church, sports clubs etc);“history – the length of time the client and the other adult have known each other and/or have resided at the same address; shared children.”
Financial interdependence includes:
“joint bank accounts, assets or joint loans/credit;“joint ownership of real estate or other major assets and any joint liabilities, eg both the client and the other adult own a rental property;“significant pooling of financial resources, especially in relation to major financial commitments eg saving for a house, car or holiday.”
For the complete lists, see tinyurl.com/EmoCommitment and tinyurl.com/FinInterdependence.
Allpress adds: “Everyone’s situation is different. We would encourage anyone with questions to get in touch with us to talk through their situation.”
“Your letter writer can contact the MSD main helpline (0800 559 009 ) or the MSD Seniors Line (if she is receiving NZ Super) to schedule an appointment with us.” The Seniors Line number is 0800 552 002.
I asked: “If they have that conversation with MSD, does MSD keep records of what is said? Or record the conversation?”
The reply: “It is our practice to keep a record of our conversations on individual client files.”
From what you’ve said, it seems to me that you might be off the hook. But it’s not my decision to make! You might want to call the ministry.
Scrap KiwiSaver?
Q: If, as your last column suggests, KiwiSaver is regarded as producing inequity, whether compulsory or not, how about adopting the alternative of simply scrapping KiwiSaver altogether?
I have always believed that superannuation and retirement income is simply about saving enough oneself to meet one’s own needs, including all along the way until retirement.
I am incredibly frustrated that we are back considering compulsion. Who does it really benefit, other than fund managers?
There are three categories of retirement savers:
Those that can afford to and do.Those that can’t afford to and don’t.Those that can afford to and don’t.
The first two categories do not benefit from compulsion, and why should we care about the third group?
A: In some ways, it’s hard to argue with what you say.
But I think you’re overlooking the fact that many people need to be “nudged” into doing what’s best for them financially in the long run.
It’s a bit like eating well or exercising. Individuals are better off – and therefore the country as a whole is better off – if people are healthier. But many people won’t do healthy stuff unless they’re encouraged.
Of course there are also people who won’t eat well, exercise or save for their retirement, even with inducements. But many do respond.
I’ve heard KiwiSaver critics say that New Zealanders aren’t saving more since KiwiSaver started, they are just saving in a different way.
But I don’t believe that. So many people have said to me that they are financially better off because of the scheme. They have also learnt heaps about how markets work and benefited from the fact that KiwiSaver is pretty highly regulated. They’re less likely to be scammed.
By all means, ponder whether compulsion is good or bad. And let’s look hard at the other KiwiSaver changes being suggested. But I can’t agree that this country would benefit from ending KiwiSaver.
What if you’re made redundant?
Q: As a long-time reader of your column, I’m aware of the mantra that regular KiwiSaver contributions maximise long-term returns, and I’ve generally agreed with that approach. However, I’m starting to wonder whether it still makes sense in my situation. I was one of those affected by the Government’s spending cuts when my employer downsized, leaving me unemployed at 59.
Finding work has been difficult for many people over the past two years, but for someone now in their 60s, it feels virtually impossible, regardless of skills or experience. Fortunately, my wife and I have always been good savers and investors, so we’ve built up a reasonable nest egg. However, as my wife’s contracting income was also affected, we’ve now needed to start drawing on our investments to cover living costs. With no income for the past 12 months, I haven’t contributed to KiwiSaver so will miss out on the government contribution this year. Given the government contribution is now only $261, does it make sense to contribute $1043 from our investments into funds that will remain locked away for another five years? While I’m not worried about running out in retirement, and both the KiwiSaver fund and managed portfolio my living expenses come from have much the same annual return, $261 is still $261.
A: Redundancy at your age is particularly tough, given the ageism that’s common in recruitment practices.
Still, I suggest that you – and your wife, for that matter – keep putting the $1043 each year into KiwiSaver. As you say, getting $261 is not nothing. And if you have three or four years before you turn 65, it will amount to $1000 or so.
That’s a grand 65th birthday bash, or perhaps a little birthday trip!
By the way, in the year you turn 65, the government contribution is proportionate to how much of the July 1 to June 30 KiwiSaver year you are under 65.
For example, if you turn 65 on January 1, you would be entitled to half of $261. You would need to contribute half of $1043. It doesn’t matter when in the year you deposit your money.
In or out of KiwiSaver?
Q: I’m 52 and self-employed and have managed to squirrel away some savings over five years.
My current KiwiSaver balance is $95,000. I’m in a high-growth fund with Westpac, which is a mid-return and mid-fee structure compared to other providers.
In that same time, I’ve also put $36,000 into Sharesies, with a current balance of $62,000. Over those five years, my shares have outperformed KiwiSaver every year. I review my situation at the end of each financial year. This year I have chosen to reduce the amount I’m paying into KiwiSaver to the minimum, to receive the government contribution.
I’m now investing that money into Sharesies. I have a mix of single companies and ETFs [exchange-traded funds]. I have been lucky with some single companies and not so lucky with others.
My plan is to hang on to the single companies for another five years and, if they haven’t seen significant growth, sell those shares and put the cash into my ETFs – providing they are not down.
I also have crypto, which has also outperformed KiwiSaver, but I’m not prepared to risk any more cash on crypto. I was lucky enough to buy metals before this recent surge. With the government KiwiSaver contribution reducing, I really don’t see any benefit to putting more cash into KiwiSaver. When I look at what I was putting in to receive $261, I pay more than that in KiwiSaver annual fees.
Thoughts? Am I wrong? Self-employed people really do get a rough deal with no company and only a small government contribution. I feel no one acknowledges this – probably because there’s nothing to say about it. Interested to know your opinion.
A: Hang on a minute. I’ve been acknowledging the raw deal for the self-employed for some time now!
For example, after last year’s Budget, I wrote in this column: “The biggest losers are probably the self-employed and those not employed. Their only KiwiSaver incentive is the government contribution, and the halving makes it considerably less attractive.”
I did add, though: “Still, it’s worth getting. If you save $20 a week and your savings outside KiwiSaver would have been $100,000, in the scheme they will be $125,000.”
Anyway, let’s look at your situation. Firstly, good on you for putting that money away. Too many self-employed people, perhaps struggling to buy the basics, don’t save.
Should the money go into KiwiSaver or elsewhere? A few comments:
One clear advantage of elsewhere is that you can withdraw the money any time – unless, of course, you would rather lock it out of the way of temptation!Comparing returns over five years is much better than comparing over a shorter period. But you might still find your KiwiSaver returns topping the Sharesies returns in future. There are no guarantees.Your ETFs are probably passively run and therefore charge low fees. Great! I suggest you move your KiwiSaver to a low-fee provider.You might want to move out of individual shares into the ETFs sooner. The majority of shares perform worse than the market average, while a few do brilliantly. And most people are lousy at picking those winners.I agree that a bit of crypto and precious metals is fine – but not too much.
So where should your future savings go – apart from continuing to put enough into KiwiSaver to get the Government’s $261?
Given that we can’t predict whether your ETFs and shares will continue to outperform your KiwiSaver fund, I would be inclined to put half in each. But if you really prefer to concentrate on the ETFs, it probably won’t make that much difference.
* Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a former director of the Financial Markets Authority, the Banking Ombudsman Scheme and Financial Services Complaints Ltd. 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.
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