KiwiSaver - Where does your KiwiSaver Dollar go

[minimoke]

Coming from another thread I thought it might be interesting to stick a locator beacon on a KiwiSaver dollar to see where it might go. Heres where it seems to have tracked – assuming you want to be part of KiwiSaver
1. Firstly it leaves your pay and heads off to your employers bank account for a while
2. From there it heads off to IRD via the PAYE schedules
3. IRD then carves it off to the Kiwi saver part of IRD where it sits for a while.
4. IRD KiwiSaver will then send it through to a Default Provider. It floats around there doing stuff – but I haven’t quite worked out what yet.
5. Somewhere around here its mated with a wee bit of your tax dollars which has produced a snip of Interest. (your tax dollars are busy doing their own wee dance around employer contributions, Payroll help for small employers and Employer contribution stuff – but thats all another path to follow another day)
6. You’ve now decided on who you would like your provider to be. Lets say its Forsyth Barr – but it could be any one of 30 or so providers.
7. So the dollar now heads off from the Default Provider to Forsyth Barr
8. The Dollar now gets flagged by Trustees Executors Superannuation Limited who are supposed to make sure FB do an honest job. No doubt a bit of your dollar goes to them.
9. Somewhere in here you get to look at the mortgage diversion option which sends part of your money back out of FB to your mortgage (for a fee)
10. FB will then send it to your choice of either a Personal, Balanced or Growth portfolios.
11. Lets say you go with the “personal”: - in which case your dollar now gets split 8 ways into different investment sectors. One of these is “NZ Equities”
12. Now where will the dollar go. FB obviously backed FTX – so had Kiwi saver been around a few years ago this part of your dollar has gone. Presumably at this point you will be asked for another dollar to pursue FB and FTX directors – but note that FB clearly make the choice of selection your responsibility
13. Now to fees. Bits of your dollar will go to an Account Fee; a Portfolio Fee (0.75%); Scheme Expense Fees; a Switching Fee (if you want to go to another FB portfolio); and an Insurance Premium(of course you will be offered one of these as an option).
14. Having seen all this you may not be so happy with FB so you decide to go with your employers scheme.
15. So a bit of your dollar will go to a Transfer Fee.
16. At this point I have no idea how much of your dollar is left but it then heads out of FB and off to your employers Scheme where a similar cycle begins.

And this, in brief is how we are going to make NZ’er financially literate and financially secure in their old age.

[Year of the Tiger]

Minimoke, your post highlights for me, the reasons why I haven't joined KiwiSaver. I had also thought at one stage of starting up KiwiSaver for my grandkids but have again decided against that too.

The following are just some of the things that spring to mind that have caused me to take this action (or non-action)...

Reason 1: Bureaucracy
All the to-ing and fro-ing of the funds between all the parties involved, caused me to think that it would be very difficult to have a clear picture of where my fund would be at any one time.

Reason 2: Charges
With the chance of so many clipping the ticket on the way past, I have doubts about the full disclosure of who is getting their mitts on my money.

Reason 3: Lack of Control
I would have no control over the speed of transit for my funds from one location to the other and also, very little control over where my funds were invested. I might be able to choose the type of portfolio but that is about it as far as I can see.

Reason 4: Tied in for "Life"
Unless I chose to opt-out within the first few weeks, I would be tied into this for life (meaning until retirement anyway). The first-home bit is of no benefit to me as I have owned in the past and still own my own home.
This is also the main reason I chose not to proceed with my grandchildrens' schemes. If I set them up now, they will be locked in once they start working with no choice to opt-out.

Reason 5: History repeating itself
Many years ago, in another life, I was forced into compulsory Superannuation until a later Government decided to can the "compulsory" aspect and it became optional. In my view, and based on the way things flip-flop in this country (read that as lifetime driving licenses, 10 year passports, changes in the drinking age and the list could go on for hours), I have very little confidence that KiwiSaver will even exist in 20 years time.

YOTT

[minimoke]

I had also thought at one stage of starting up KiwiSaver for my grandkids but have again decided against that too.


I’d suggest you reconsider this. For the sake of getting them an IRD number and filling out a couple of forms you can give them $1,000 each – consider it the recycling of your hard earnt tax dollars or, as I did, a Special Tax Dividend.

Really they have nothing to loose – particularly if you get them into a low fee / low risk scheme. Even though they can’t Opt Out they can decide to go on countless (so far) Contribution Holidays – and they only contribute once they earn taxable income.
I'd not be recommending you put anything else into their accounts as some grandparents are considering - I'd be putting it into a regualr old bank account.