I joined KiwiSaver from inception date, with my first salary deductions credited to IRD on July 15, 2007. I chose Westpac KiwiSaver, to be loyal to my employer whose banking was with Westpac. I chose the Cash Fund, as I am nearing retirement (born 1952) and my risk appetite is low.
I recently looked into the performance of my Westpac KiwiSaver and was shocked and annoyed at its abysmal performance. According to IRD My KiwiSaver, contributions transferred to the scheme (from salary deductions, employer contributions, government contributions and interest paid by IRD) on June 16, 2009 totalled $14,688.
On the same date, according to my Westpac KiwiSaver, my account held 13,548 units which amounted to $14,743. Together with current balance of $151, my total funds were valued at $14,894, which meant the gain over contributions over nearly two years was a mere $206. According to Westpac KiwiSaver Scheme (under BT Funds Management), as at March 31, 2009, returns (before tax and after fees) of the cash fund were: three months 0.93 per cent, six months 2.34 per cent, one year 5.96 per cent. There seems to be a gap between the reported performance and my investment account.
I need to be more involved in monitoring my provider. My experience suggests that your readers should do likewise. Ultimately, I would like to transfer to a better-performing provider. Surely, a cash fund can't be that difficult to manage?!
Mary Holm: Thanks for giving me permission to send your name to BT Funds
Management, manager of Westpac KiwiSaver, which enabled them to work
out what's happened. Things aren't as bad as they look, for several
Firstly, you should include interest paid by Inland Revenue in the return on your money. In your case, for some reason probably to do with start-up problems, Westpac KiwiSaver didn't receive any of your KiwiSaver money until November 2007. But that didn't matter much, as you received a tax-paid 5.36 per cent - which came to $90 - from Inland Revenue on it.
Secondly, the timing of your letter to me was unfortunate. A spokeswoman for BT Funds Management says that on that very day Westpac KiwiSaver had received some of your money from Inland Revenue but not yet processed it. They did that in the next few days, and credited the money to your account from the date they received it. "If the letter had been written the next day, this money would have appeared in his account, and his investment earnings since inception would have been $793, after fees and before tax," says the spokeswoman.
Note the "after fees and before tax", which is how the performance data is published online. However, you have paid tax of about $147 so far, so that leaves you after-tax investment earnings of $646, plus $90 from Inland Revenue.
But hang on a minute. That still looks pretty pathetic on the $14,598 that has gone into your account - after subtracting Inland Revenue's interest - doesn't it?
Well, no. It's important to bear in mind that hardly any of that money has been in KiwiSaver for two years. It has been drip-fed in over time, with some of it in the account for just the last few weeks or months. That makes a huge difference - which, by the way, applies to any drip-fed investment, not just KiwiSaver. In your case, this is exacerbated for two reasons:
* Your contributions have been increasing over time. That means the bulk of your money hasn't been in the account long enough to earn much of a return.
* Interest rates have been decreasing on the Cash Fund and pretty much everywhere else. You need look only at the three-month, six-month and year returns you quote to see that. Unfortunately, as your account balance has grown, returns on it have fallen.
Feeding some rough numbers into the Regular Saving calculator on www.sorted.org.nz suggests you have received the correct investment earnings.
Hang in there. Interest rates won't always fall. And after a few years, compounding will have had time to work its magic.
Footnote: The 5.36 per cent interest paid by Inland Revenue, mentioned above, no longer applies. The rate was dropped to 3.41 per cent on March 1 this year, and then to 1.47 per cent on June 29.
That means it's no longer painless to have your KiwiSaver money sitting around at Inland Revenue. So here's hoping it gets into KiwiSaver accounts fairly fast from now on.
Mind you, I suppose the Government could argue that it's putting lots of money into KiwiSaver, so if the interest rate is mean that is much more than cancelled out by the tax credits.
Mary Holm is the author of bestselling books on KiwiSaver and personal finance. She is also a highly praised seminar presenter. Her written advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following that advice.
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