Thursday, May 24, 2007
Kiwisaver
I was lucky enough to attend one of 
Dr Gareth Morgan's seminars yesterday, where he and his wife Jo spoke about their motorcycle trip though North America, NZ's economy, Kiwisaver pitfalls and their beginnings in philanthropy (we only gave him a few dollars to keep him off the streets and look what came out of left field!). 2.5 hours of good stuff, with a $15 entrance fee that they matched and gave all to Kidz First.
Here's a summary of what he said about Kiwisaver. I don't have a copy of his seminar notes so this is just from memory.
Dr Cullen has launched the Kiwisaver scheme with so many tax and other sweeteners that many people will jump in and sign up, just like they got into forestry in the 1970's (who made any money from that?). Dr Cullen has ignored the fact that the investment industry is full of multinational sharks who are very skilled at breaking the rules. There is no policeman to force them to keep to the rules.
People signing up need to look very hard at whether they will actually get any money in 30-40 years. It will be paid out when you reach the age for Superannuation (will it be 65 or 95?). There are no government guarantees on any of these funds.
When you invest in one of these schemes, you pay your money into a Trust, which is administered by a Trustee. The Trustee is not responsible to you to look after your money, he is responsible to the investment company.
Ask for a copy of the Trust Deed. They will not want to supply you with one. Gareth paid $28 to finally get a copy from Tower Trust (as an example). Look carefully for the fish-hooks and compare to other Trust Deeds. Ignore their prospectus, it is only a glossy sales tool.
The Trustee, in the Trust Deed, will usually be permitted to divert some of your money into 'reserve funds', tucked away for such future things that might happen like a tax increase. You have immediately lost that money. The Trustee may also be able to take your money for such reasons that are 'reasonable'. If you don't think it is 'reasonable' you will have to take them to court to prove otherwise.
Other tricks they get up to:
You are an 'unsecured creditor' and get last call on any funds in the event of the company getting into trouble.
The company will cease supplying you with a detailed statement saying 'you have x,000 shares in Telecom, x,000 in F&P, $x in fixed interest at x%'. They will instead convert your investment to 'Units' and you will only know you own x,000 units at x$ each.
After several years they will turn an investment fund into a 'zombie' and not accept any more money into it. Returns will wind down (to zero or negative), and they will launch a new flash fund with great promises, TV ads and glossy brochures. Normally, you will have agreed to a charge of about 30% of your funds to transfer to another fund, but they will make you an offer of only 10% cost for this limited time. Once they have all the investors out, they can pay themselves the reserve funds.
They are very good at rewriting your contract and not telling you (illegal of course). Gareth calls them and says he has lost his contract and requests a new copy. He has not lost his one, and he lays them side by side and compares the wording. Usually there will be some words like 'the Trustee may take funds for reasonable expenses' to the 'the Trustee will take funds for reasonable expenses' .
Personally, I won't be getting into Kiwisaver with only 5 years till I am 65. If I was aged 20-40 I would find the whole thing a pretty scary prospect. 40-odd years are a very long time in the money investment world. My mother paid money regularly into a T&G building society plan for me, started in the 1950s, through many difficult years, intending that it would make a deposit on a house for me one day. When it matured it was worth $250. Inflation and low returns had made it a joke.
Gareth Morgan does have a Kiwisaver fund. If you are going to run with Dr Cullen's tax breaks, get the Trust Deeds and compare Gareth's fund with the others.
Gareth has an article on this subject on his website.
From his article: "It's not uncommon for products with headline fees of 0.5% to have an effective cost of 3%," says Morgan.
So watch out for those mainstream institutions offering 0.5% fees. They may be milking your hard-earned funds.
Dr Gareth Morgan's seminars yesterday, where he and his wife Jo spoke about their motorcycle trip though North America, NZ's economy, Kiwisaver pitfalls and their beginnings in philanthropy (we only gave him a few dollars to keep him off the streets and look what came out of left field!). 2.5 hours of good stuff, with a $15 entrance fee that they matched and gave all to Kidz First.Here's a summary of what he said about Kiwisaver. I don't have a copy of his seminar notes so this is just from memory.
Dr Cullen has launched the Kiwisaver scheme with so many tax and other sweeteners that many people will jump in and sign up, just like they got into forestry in the 1970's (who made any money from that?). Dr Cullen has ignored the fact that the investment industry is full of multinational sharks who are very skilled at breaking the rules. There is no policeman to force them to keep to the rules.
People signing up need to look very hard at whether they will actually get any money in 30-40 years. It will be paid out when you reach the age for Superannuation (will it be 65 or 95?). There are no government guarantees on any of these funds.
When you invest in one of these schemes, you pay your money into a Trust, which is administered by a Trustee. The Trustee is not responsible to you to look after your money, he is responsible to the investment company.
Ask for a copy of the Trust Deed. They will not want to supply you with one. Gareth paid $28 to finally get a copy from Tower Trust (as an example). Look carefully for the fish-hooks and compare to other Trust Deeds. Ignore their prospectus, it is only a glossy sales tool.
The Trustee, in the Trust Deed, will usually be permitted to divert some of your money into 'reserve funds', tucked away for such future things that might happen like a tax increase. You have immediately lost that money. The Trustee may also be able to take your money for such reasons that are 'reasonable'. If you don't think it is 'reasonable' you will have to take them to court to prove otherwise.
Other tricks they get up to:
You are an 'unsecured creditor' and get last call on any funds in the event of the company getting into trouble.
The company will cease supplying you with a detailed statement saying 'you have x,000 shares in Telecom, x,000 in F&P, $x in fixed interest at x%'. They will instead convert your investment to 'Units' and you will only know you own x,000 units at x$ each.
After several years they will turn an investment fund into a 'zombie' and not accept any more money into it. Returns will wind down (to zero or negative), and they will launch a new flash fund with great promises, TV ads and glossy brochures. Normally, you will have agreed to a charge of about 30% of your funds to transfer to another fund, but they will make you an offer of only 10% cost for this limited time. Once they have all the investors out, they can pay themselves the reserve funds.
They are very good at rewriting your contract and not telling you (illegal of course). Gareth calls them and says he has lost his contract and requests a new copy. He has not lost his one, and he lays them side by side and compares the wording. Usually there will be some words like 'the Trustee may take funds for reasonable expenses' to the 'the Trustee will take funds for reasonable expenses' .
Personally, I won't be getting into Kiwisaver with only 5 years till I am 65. If I was aged 20-40 I would find the whole thing a pretty scary prospect. 40-odd years are a very long time in the money investment world. My mother paid money regularly into a T&G building society plan for me, started in the 1950s, through many difficult years, intending that it would make a deposit on a house for me one day. When it matured it was worth $250. Inflation and low returns had made it a joke.
Gareth Morgan does have a Kiwisaver fund. If you are going to run with Dr Cullen's tax breaks, get the Trust Deeds and compare Gareth's fund with the others.
Gareth has an article on this subject on his website.
From his article: "It's not uncommon for products with headline fees of 0.5% to have an effective cost of 3%," says Morgan.
So watch out for those mainstream institutions offering 0.5% fees. They may be milking your hard-earned funds.
# posted by Doug @ 8:53 AM 
