Freelancers – here’s how to make sure you’re still contributing to KiwiSaver.

If you are not an employee of a company, you will need to make ‘voluntary contributions’ to your KiwiSaver account.

Firstly, let’s cover off the why. Here at Ducks in a Row, we think damn near everyone should be in KiwiSaver, contributing at least 3% of their income. But if we can’t convince you to do that, you should at least consider contributing a total sum of $1,042 per year.

Why? Because if you do, the Government will give you $521 each year. No strings attached.

For every $1 you put in to your KiwiSaver account, the government will contribute 50 cents, up to a total of $521, every single year. That is a 50% return on investment on your $1,042 – which is huge. And it will only cost you about $20 per week.

One thing to note: you only qualify for this perk if you are aged between 18-64, and mainly live in New Zealand.

Now, let’s get down to how you go about making contributions.

Oddly enough, this isn’t as straightforward as it should be, so we’ve broken it down for Westpac, ASB, ANZ and BNZ account holders.

There are a couple of ways you can make voluntary contributions. Either set up an automatic payment, or make manual payments.

Some banks don’t let you make automatic payments for KiwiSaver contributions – including Westpac and ASB. So, if you’re with one of those banks, you will need to do it manually each time.

You could do a one-off payment of $1,042, or split this into two or three payments throughout the year. But if your bank lets you, it can be easier to simple set up an automatic payment of approximately $21 a week to receive the maximum member tax credits.

Whichever way you do it, make sure you’ve contributed at least $1,042 before June 30th every year, as this is the cut-off date. 

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ANZ

Go onto your online banking

1. Set up a payment (manual or automatic)

2. Go to your payees list – Search for the name of your KiwiSaver provider. (Image 1 below)

3. Select the amount you want to contribute (eg $20), when the first payment is to be deducted and the frequency of payments ongoing. (Image 2)

4. It will ask you to add the reference details so your KiwiSaver provider can identify you. If you’re not sure what they are, they will be on your KiwiSaver statement or online profile. (Image 3)

5. Select confirm and you’re all done!

Image 1

Image 2

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ASB

Go onto your online banking

1. Click the payment tab and select ‘IRD Payments’ from the drop-down menu.

2. Select ‘KiwiSaver member account (KSS)’ from the drop-down menu. (image 1)

3. Put in your IRD number, the amount you want to contribute (eg $20). (image 2)

4. Select next, confirm and you’re all done!

Image 1

Image 2

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Westpac

Go onto your online banking

1. Select ‘Pay and transfer’ on the right hand bar

2. Select the account you want the money to come out from.

3. Select ‘IRD (inland revenue) pay tax’ from the drop-down menu.

4. Under the details section, select ‘KiwiSaver Member Account’ from the drop-down menu.

5. Put in the amount you want to contribute (eg $20).

6. Select confirm and you’re all done!

Image 1

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BNZ

Go onto your online banking

1. Select ‘pay or transfer’ from the drop-down menu

2. Select the account you want to contribute from (eg savings). (image 1)

3. Select ‘Employer - KiwiSaver deductions for employees - KSS’ from the drop-down menu.

4. Put in the amount you want to contribute (eg $20) and your IRD number.

5. Select continue and you’re all done!

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If you would like to get your ducks in a row, just click the button below and we will sort the rest.

"I earn more than I used to, but it feels like I have less money."

If this sounds like you, don't feel bad. It's a really common situation that most of us have experienced, and usually we aren't even aware of what we're doing to cause it.

First things first, we know life happens. Unexpected bills and greater responsibilities can mean more spending. What we've written below refers more to the extras, the things we don't need to spend money on.

So, there's this thing called Parkinson's law. Without getting too far into it, the law says that "Work expands so as to fill the time available for its completion." This basically means it doesn't matter how long you give yourself to complete a task, 1 day, 1 week, a month - whatever time limit you set, that's how long it will take.

This law seems to apply to other things, too. The bigger our house, the more stuff we'll accumulate to fill it up. The bigger our plate, the more food we'll pack it with, and subsequently eat.

In a financial context, the more money we have, the more we seem to find things to spend it on. Living our entire lives like this means we'll probably never get ahead financially, and will live our lives paycheque to paycheque.

So why do we spend more when we earn more?

Essentially it comes down to our relationship with money, and our lack of transparency over where it goes.

Us and money.

Let's say you get a new job and go from receiving $650 cash into your bank account each week to $900. Fantastic. Now, there are a couple of legitimate expenses that might come with that. Maybe the job is further away, so transport costs a bit more - or you might need to upgrade your wardrobe. But fundamentally, there is no reason you shouldn't be able to save at least $200 extra per week than you were before. It's just... you probably won't.

Now don't get us wrong, we're guilty of this too. See, the issue is in our thinking. As soon as we hear the words "pay rise" many of us start making a mental list of all the great things we can now afford. This might seem okay to get us to a certain "level" of comfort - but the problem is, it never stops. There will always be something to upgrade, something better than what we currently have. Unless we change our thinking, it doesn't matter how much more we earn, we'll continue to spend all that extra money - and never reach our financial goals.

The transparency thing.

"You really should have a budget" - we hear this often. But it's so important that we're aware of where our money is going each week, each month - instead of pay-waving our way through life without a care in the world.

A budget is essential, and we have a great tool for you a little later in this blog.

 

There are a few other things that trap us in to overspending

- Online lay-buy services

- Hire Purchases

- Apple bringing out a shiny new iPhone that no one actually needs

- Qualifying for higher levels of debt, such as a credit card or big mortgage. A bank or financial institution being willing to loan you money, doesn't necessarily mean you should take it.

How do we stop it?

1. Look at all your spending from the last 2-3 months. That is, take a good hard look at your spending. What is essential, what isn't? Do you remember when you used to live of $300 a week? What are you doing differently now? We're not saying live off bread and water, but be practical about what you need vs. what you want.

And one thing, don't discount something from your analysis as a "one-off" big purchase, like a holiday. Because chances are, you'll have more of these coming up. You're better off accounting for ALL your spending, and then making a "holiday fund" bank account where you put a set amount aside each week.

2. The best way to break that annoying Parkinson's law? Limit your spending. The only way: Make a budget, and stick to it. We know, you hear it all the time. But there's a reason for that. It makes you cut the crap, and become accountable for where your money is going. Sorted.org has a really good budgeting tool you can find here. Go make one, and set yourself a goal of sticking to it for 8 weeks. See how you go.

3. Talk to a financial adviser. We say this a lot too, but their help is free, and they often have some really good ideas. For example, if you have a mortgage and a decent amount of credit card debt, they might suggest you move the credit card debt (on which you're probably paying interest of over 18%) and turn it into mortgage debt (which is probably somewhere around the 4.5-6% mark).

There it is. A brief explanation of why we often find ourselves with less, when we're earning more - and a few practical steps to help you get past it. If you have any more questions, please just get in touch.

Should I bring my Aussie Superannuation money back to New Zealand?

There are over 650,000 Kiwis living in Aussie. Every year, thousands return back to Aotearoa. No surprises there. But while working over the ditch, they’re generally obliged to sign up to the Australian superannuation scheme - and it’s a sizable 9.5% that their employer pays on-top of their wages.

But what happens when they move home? Should they bring their Aussie-super back to NZ’s KiwiSaver scheme?

Unfortunately like most things, there’s no one-size fits all answer. It depends on your personal circumstances, and we’ve had a go at breaking down the key factors below.

Here are a few things to know about before making the move:

 

Pros

• It can be done: Kiwis can transfer their super into KiwiSaver (and vice-versa) if you’re planning on moving to that country permanently.

• Tax: Transferring the money across the ditch is a tax-free transaction.

• Save on Fees: If you have both KiwiSaver and a superannuation fund, you are probably paying two sets of fees. So, it makes sense to have your money in one place, and get charged just once.

• Retirement rules: Instead of waiting until you’re 65 (the registered retirement age in NZ), you can access your KiwiSaver at 60, in line with the Australian rules.

• NZ withdrawal rules: compassionate ground rules apply in New Zealand, so you can apply to withdraw your funds early if you suffer a serious illness or financial hardship.

Cons

• First Home Withdrawals: You can’t withdraw your Australian money for your first home, even after it has been transferred into KiwiSaver. The money is locked up until retirement, because Australian rules apply.

• Insurance Benefits: Australian super often comes with added benefits, for example life insurance. You could lose these entitlements by moving the funds out of Australia. It’s so important you read the fine print, or talk to an expert.

• Exit and Entry Fees: You may be charged for the transfer into your KiwiSaver fund (or exit-fees for leaving) – If you have a few different super funds, you may be charged the fee several times.

• Exchange Rate: It can take some time to transfer the money, and the exchange rate will fluctuate over time. The applicable rate when the funds are transferred may positively or negatively impact your nest egg.

• Tax burdens – Tax on Aussie super is only 15%, whereas in New Zealand it is up to 28% depending on your income. Only Kiwis who pay less than 15% PIR on their KiwiSaver (i.e. earn $14,000 or less, will pay less tax in NZ than Aussie.

Get specialised advice about switching your nest-egg

Moving your nest-egg overseas can be quite a daunting decision. It’s a good idea to weigh up the pros and cons of moving the money, or leaving it where it is for now. Your decision will primarily relate to your individual circumstances, i.e. your age, your financial needs at the time, how much you earn, and whether you intend on retiring here in New Zealand.

It’s a great idea to get independent financial advice before moving the money. Seeking help from people who do this sort of thing every day, can make the process a whole lot easier.

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We hope you’re enjoying Ducks in a Row. If you’re interested in learning more about money and all the rest (basically the things they didn’t teach us at school) subscribe to our blog, updated every couple of weeks.

Or,

If you would like to speak to an independent financial adviser about getting your Ducks in a Row, click the button below, and we’ll sort the rest.

Copyright 2019 Row of Ducks Limited

Effective KiwiSaver - Here's what you need to know.

Many of us know what KiwiSaver is, but aren’t 100% sure on the details, and how to manage it.

KiwiSaver is a simplified saving scheme. You put a small percentage of your wages away into a fund and this money is topped up by the Government and your employer.

That money is then invested by your KiwiSaver Provider. They choose investments from around the world and try to grow your KiwiSaver money even more. In return, they take a fee. Some providers take more, some take less.

Except in special circumstances - eg, severe financial hardship or as a deposit on your first home - you cannot withdraw money from your KiwiSaver fund until you reach retirement age (currently 65).

If you never specifically chose a provider, chances are your KiwiSaver money is sitting with a ‘default provider’ chosen by the Government (90% of people are in this boat) - Your contributions will be invested in the scheme’s conservative investment fund, low risk = potentially low return. Over a lifetime this could mean missing out on thousands of dollars. 

You also need to ensure you are paying the correct tax rate on your KiwiSaver money. We can help with this. 

Where it gets slightly more complicated is when it comes time to choose where your money is invested. In a nutshell, KiwiSaver Providers generally offer three-five types of funds. To make things simple, we’ve selected three:

Where you allocate your money is entirely up to you and depends on your circumstances. For example, a young person may be willing to put more of their money in the growth fund, as they want to grow their KiwiSaver as much as possible to use it towards buying their first home. Growth funds are the most risky KiwiSaver investments, but the have the potential to reap the biggest rewards. 

You need a KiwiSaver provider who:

• Has a reasonable fee structure

• Communicates well

• Makes it easy to set the correct level of investment risk for your situation

• Has a history of performing well in terms of investment growth (although this is never guaranteed)

Talking to a financial adviser will help you assess the right fund options for your unique situation.

If you get your KiwiSaver set up correctly, you could actually double your nest egg in half the time*

*Obviously we can’t guarantee this. But most KiwiSaver funds are doing less than 4% return. This means your money will double every 18 years. But by understanding the different types of risk, and the time you have to invest, an adviser will help you create a unique KiwiSaver strategy. Depending on your circumstances, you could double your money in half the time.

Meet Kev.

Meet Kev. Lead adviser at Ducks in a Row.

If you’re new to Ducks in a Row, and aren’t sure what we do, have a read of this.

Kevin’s job is to help people get themselves, and their businesses, to a better place financially. This includes top-notch advice around budgeting, borrowing, insurance, KiwiSaver, and more.

When he’s not working with his own clients directly, Kev steps into his role as CEO of a nation-wide group of advisers. Essentially, he advises other advisers, on how to give their clients the best-damned advice they can give.

Kev is the lead adviser here at Ducks in a Row, and we’re lucky to have him. We managed to pin him down for a minute, to ask him a few questions that we’ve had through the grapevine.

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Say we want to really get it together in 2019. Where should we start?

• Get an up to date Will – It’s estimated that 50% of Kiwis don’t have one, but it’s one of those documents everyone has to pull out sooner or later. Make it easy for those you care about. More on that here.

• Start saving first, spending second – Most people spend spend spend, and try and save after. This method is deeply flawed. If you set an (achievable) goal of, say, $25 per week, and put that away first, you have the freedom of spending the rest, while quietly building a nest egg.

• Figure out where your KiwiSaver money is, and make sure it’s the right place. So many New Zealanders don’t know which company is looking after their KiwiSaver money, let alone what kind of fund it’s in. Considering this is the ticket to many people’s first home, and/or their retirement plan, it deserves a lot more attention than most people give. More on that here.

What are some easy mistakes that can be avoided?

• Borrowing money the wrong way – people often use credit cards and pay high interest rates, when interest rates on mortgages are a quarter of the price.

• Putting things on hire purchase (or lay-buy) that you simply don’t need.

• Replacing/ upgrading something for no real reason (ie your phone or car)

• Making risky investment decisions (shares, KiwiSaver, business ventures).

How can you start savings when you don’t have much money left at the end of the week?

I know you hear it all the time - But making a budget is the best way to figure out exactly where the money is going. Obviously, there are things you can’t cut, like rent, fuel, food, but if you do it accurately you will see how much is being spent on funding your lifestyle – Nights out, unused subscriptions, new clothes and more. Once you’ve identified these you can start cutting what you don’t truly need. Look at how much is left over, and set up an automatic payment to put a feasible amount (eg $50 per week) into savings for future wealth creation.

When’s a good time to get Insurance?

Get it before you need it. We can’t predict what happens in our lives. It’s about asking quality questions to make sure you can survive financial hardship in unforeseen circumstances;

• If your car got stolen and it’s under finance, what are the implications? You don’t have a car anymore, but you still owe money on it.

• If you get sick and can’t work, your income will simply stop. How will you pay your bills? ACC won’t help unless it’s an injury.

• If you’ve got a mortgage with your partner and they’re killed in a car accident tomorrow, can you afford to keep paying it off?

• An effective insurance strategy can make sure you’re covered for all of this. More on that here.

Why should I get financial advice?

The same reason a professional golfer still has a coach – To help improve weaknesses they’re not aware of. An adviser will open your eyes on the areas that are important to you. Financial literacy is not something we’re taught at school, it’s something we’re expected to learn along the way. Having a coach to guide you helps get you to where you’re trying to be a lot easier. Not to mention, it’s free.



If you’d like to have a chat to Kevin, or one of our other advisers, just click below to get your Ducks in a Row.

Why every Kiwi needs a Will.

Passing away without a Will places a lot of added stress and pressure on your family during an emotional time. Your Will should be sorted as soon as possible, for the sake of your family and loved ones.

What happens if you die without a Will? 

1. Everything in your name, including your bank accounts, is frozen by the court.

2. Even if there is no disagreements between who gets what, all your assets will remain frozen for at least six months. 

3. Your family will need to pay legal and court fees to get it all sorted out. 

Many people are under the misconception that they don’t have any assets to put into a will.

Even if you don’t mind where your assets will go, having a Will means your family won’t be stuck with the expensive burden of sorting it all out after you have passed away.

*Wills can be complex, and it's something you can chat to an adviser about helping map out your wishes with a lawyer.

I’m in my early twenties, and I’ve decided to pay attention to my financial future.

Let me start off by saying this doesn’t mean I’m working 7 days a week, staying in on the weekends, or living off noodles and toast and whatever my parents will give me. Really it just means I’ve decided to pay a bit more attention to my finances, and educate myself on a few of the basic things about money that I now realise we really should have been taught at school, but weren’t.

It’s a bit frustrating, because we learned about trigonometry, but not how to make a budget, or get a mortgage.

Call it financial knowledge, responsibility, planning, whatever. This is the stuff that I’m glad I now know about.

I’ve been fortunate enough to find myself in an environment with access to a massive amount of financial knowledge. I realised that not everyone is that lucky, and a lot of this information isn’t easily available to people. Or, if it is, the way it’s written makes it seem so complicated, that after 5 minutes of reading most of us want to throw it all in the too-hard basket, and just hope for the best.

So here we are. Ducks in a Row. This is my attempt at helping people learn more about their money :)

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Whatever your age, you might be thinking there’s time to figure this all out later. But one of the first things I found out - the sooner this gets sorted, the better.

Timing is one of the most important factors in this whole equation. And the earlier you roll up your sleeves, and get your head around it all, the better.

I’ve broken it down into four key elements. These are the most important “ducks” that I think everyone needs to get in a row.

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My Spending Behaviour

People (like my parents) used to tell me I needed a budget. My response would consist of a small eye roll and a quick subject change. I’ve always had a job, and been relatively careful with spending - so I thought it didn’t apply to me.

Then my bank released an app that tracked my spending. When I actually started looking at where my money was going, it was a wake-up call to say the least.

Food, coffee, and new clothes was the bulk of it. And some small tweaks meant some big savings.

Budgeting is pretty straightforward, and sorted.org has a really good tool.

The more important thing I learned however, was about my long term behaviour. Have you ever felt like no matter how much more money you make, say when you shift jobs or move from part time to full time, you never actually have any more money?

I found out it’s because of something called Parkinson’s law. Basically, unless we pay attention and really question our spending, it will increase with our salary. Meaning we never save anything, and just incrementally spend more and more throughout life.

I wrote a whole blog about it here. Have a read later on.

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My KiwiSaver

This one is really important. After all, it’s my nest egg. Almost everyone I know is in a KiwiSaver scheme. But when we’re asked about what provider we’re with, or how much our KiwiSaver is being taxed, we don’t really have an answer. I was even fuzzy about exactly when I could withdraw my KiwiSaver money.

When we start working, we get set up with KiwiSaver. Most of us are enrolled in a default scheme, and put in a fund that doesn’t necessarily match our financial goals.

For most of us, our KiwiSaver account is one of our biggest assets. We should pay at least some attention to it.

After some research, I learned about a few key factors that every one of us should sort out. Not doing so could easily mean $300,000 less in our KiwiSaver account by the time we’re 65.

The major ones are your provider, the type of fund you’re in, your employer’s contributions, and your tax rate.

If you want to know more, and potentially end up with way more money for your first home and your retirement, then read my other blog on this here.

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My Insurance

Insurance. What a boring, morbid topic. What happens if something goes wrong? Ugh.

Like maybe some of you reading this, I used to have that “it won’t happen to me” attitude. Problem is, shit does happen.

I’ve learned that insurance isn’t just for things like your car or your house. There are other, really important types of insurance, that relate to everyone’s most important asset - their ability to earn money in the future. It’s so important that I’m not even going to send you off to a separate blog post. I’m going to tell you about them now. Right here.

1. Medical/Health Insurance - People do tend to know about this one. It that covers medical bills if you get sick, it gets you immediate treatment instead of waiting, and it gives you access to non-Pharmac funded drugs (of which there are heaps).

Kiwis use their medical insurance an average of 4 times before they turn 65.

2. Income Protection - An important, and more unknown type of insurance. If something happens and you can no longer work, this type of insurance will pay a % of your salary, ongoing. As long as you can’t work, you’re still getting paid.

People get tripped up here because they think ACC has their back. But ACC only covers accidents, no diseases, mental illnesses, or a host of other issues that stop people from working.

1 in 5 Kiwis will claim on their income protection policy.

3. Trauma - A big old lump sum payment of money, if you get diagnosed with a serious illness.

The biggest claim here in New Zealand is for cancer. 1 in 3 Kiwis claim their lump sum trauma payout.

The beauty of this one is a lump sum of money into your bank account, with no strings attached. You can use it for alternative medical treatment, mortgage payments to release financial pressure - anything you want.

4. Life - Another more familiar type of insurance for a lot of people. If you’re diagnosed as terminally ill, or you pass away, your family gets a big lump sum payment. This can help them pay off debt, and relieve some financial pressure in a very tough time. It’s important to have a Will that details who this money should go to, otherwise a court will decide. This is a perfect segue into my fourth and final topic. Wills.

If you would like to know some more on the insurance side of things, I’ve broken it down further in, you guessed it, another one of my blogs.

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My Will

Okay so if you thought insurance was morbid, you’re going to hate this one. But you just have to get it sorted. At the end of the day, we’re all going to the same place, and we all need a will.

Thinking about this topic can make people sad or uncomfortable (it did to me) and that’s totally normal. But in the interest of your family and friends, try to treat this as a practical task, grit your teeth, and get it done.

My first thought was something along the lines of “I have no assets, so I’ll worry about this later when I’ve got kids and stuff.”

The problem with that? Almost all of us have assets, we just don’t realise it. My KiwiSaver account, my car, my laptop and inherited jewellery all count as assets. Without a Will, no one knows where those things should go in the event of my death.

If we die without a Will (called “dying intestate”), it’s a huge hassle for everyone we leave behind. And when you think about it, they’re already going through a tough time, so why make it harder on them?

Essentially the court can freeze the assets, and no one can access them, not even your parents. They have to go to court, pay legal fees and wait 6 months or longer to get it all sorted. If you have business assets, a whole extra layer of complication is added.

The easiest way around it? Leave a straightforward Will, stating exactly where you would like your assets to go in the unfortunate event of your death. Then update it for big life events i.e. marriage, new kids, just won Lotto etc.

Getting a Will is so important, we have teamed up with a company that specialises in this area. Their name is Perpetual Guardian, and they’re great. If you go through Ducks in a Row, you’ll get a significant discount - so you can have your Will created for as little as $50.

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So, what’s the best way to get this stuff sorted?

Ask for help. There are quite a few moving parts, and considerations to be made.

I have set up Ducks in a Row in a way that gives us access to a few of New Zealand’s top Financial Advisers. The best part, their help is 100% free.

They can sit down and look at your financial situation, and essentially get your Ducks in a Row for you. By law, everything is kept totally confidential, and the advice they give you must be entirely independent.

The reason their help is free? They’re paid by the insurance companies, only if you decide to take out an insurance policy, but there’s absolutely no pressure to do so.

If you’re thinking it’s time to get your Ducks in a Row, great. Just click below, and tell us a bit about yourself. We’ll do the rest.

- Jess

Co-Founder

How much should I be contributing to KiwiSaver?

Day 1. Darryl from HR shoves a KiwiSaver form in front of you. He wants to know how much you're going to contribute and needs the form back in 26 minutes. What do you do? Go.

Step 1 - Figure out why you're actually putting money into KiwiSaver.

We have already written about when you can withdraw your KiwiSaver funds here. Read that, because it only takes 5 minutes. If you can't be bothered, just know it basically comes down to whether you want to withdraw your KiwiSaver money in the short term, like buying your first home, or in the long term, like when you retire. This should factor into your decision.

Step 2 - Ask Darryl how much the company will pay towards your KiwiSaver.

They're legally obliged to pay 3%. If that's the case, then skip to step 3.

If it's 4% or even 8% (you lucky bugger) then you have to put some thought into this one. Think about it, if your employer is willing to match your KiwiSaver contributions up to 8% that's pretty great. Based on a $60k salary, changing your KiwiSaver contributions from 3% to 8% means you'll be paid an extra $2,100 per year in contributions from your employer. That's the equivalent of getting a $3,200 salary bump, for doing literally nothing other than increasing your own contributions.

Combined, you and your employer will go from putting $3,060 into your KiwiSaver account each year at 3%, to a whopping $8,160 at the 8% rate.

Step 3 - Look at your budget, and determine what you can afford

If you haven't got a budget yet, do it. There's a really good one on sorted.org that you can find here.
If things are really tight week to week, contributing more than 3% into KiwiSaver might not be a good call. But if you find you're spending your extra cash on unnecessary lay buy purchases online, and smashed stone-fruit on toast with a sprinkle of feta, you might want to consider upping that contribution instead.

Step 4 - Tell Darryl to back off

In all seriousness, he can't force you to make this decision in 26 minutes. Tell Darryl you need a day or two to think it through, and you'll get back to him as soon as possible.
This is when you might want to talk to a financial adviser. Their help is free, and they're really experienced at this sort of thing. Pick up the phone and have a quick yarn with your person before making the call. We have a select few really trusted advisers that can help you at any time, just get in touch.

An example of a handy thing they'll say: you can change your contribution rate whenever you like. So if you do choose a higher contribution rate and find that you're struggling financially, it's not a big deal to drop back down to the 3% mark.

So there it is. A step by step guide to making a call on your KiwiSaver contributions. If you have any more questions (like which fund to choose) check out our other posts or chat to one of our trusted financial advisers. 

The limitations of ACC - and how Kiwis get caught out.

What actually is ACC?

ACC is a scheme that Kiwis put money in to, so that if and when we get injured, ACC covers the bills.

It’s a “no-fault” scheme, so it doesn’t matter how you were injured - (even if you were doing something silly), they’ll cover it.

What does ACC cover? Any accidental injury.

For example; if you break your arm, ACC will cover:

• Surgery and treatment costs

• Rehabilitation costs

• Up to 80% of your income, if you can’t work because of your broken arm. e.g. if you’re a builder, working with one arm is pretty difficult.

Learn more about what ACC covers

When you think about it, ACC is just a huge government-run insurance company. They sometimes get a bad wrap, and the scheme does need to be kept on its toes, but in general, we’re better off to have ACC in place. A lot of the time, people’s negative opinions about ACC arise because they don’t completely understand how it works, and the limitations in place.

 

ACC’s limitations

Over 81% of people in the hospital across New Zealand are there due to illness, not injury. And ACC doesn’t cover illness.*

That basically says it all. The majority of the time people need help with medical bills and replacement income, it isn’t because of an injury.

Yes, the public health system kicks in here, but this can take a long time. For example, you could be diagnosed with a heart condition, and be put on a waiting list. It could be a number of months before you receive treatment, depending on how bad your condition is compared to other New Zealanders (many wait longer than a year).

 

What can you do?

Insurance companies are willing to step in here, and there are two key types of insurance that can fill in the gaps left by ACC.

Medical Insurance

Covers you for both accidents and illnesses, providing access to treatment straight away, and the good ones offer non-pharmac drugs - e.g. medicine not subsidised by the government (and there are a lot of them).

The benefits:

• You have a choice - about when you have treatment, who does it, and where. You don’t get this in the public health system.

• You get treatment straight away, and your condition isn’t prioritised against other New Zealanders (i.e there’s no waitlist).

• You get access to a range of things which aren’t available through the public health system.

 

Income protection

This one is simple. If you are unable to work due to your illness, this type of insurance will pay up to 75% of your income, each month, until you can go back to work. Remember, your ability to earn an income is your most important asset. You and your family will likely struggle if you aren’t able to earn money.

As always with insurance, you can’t afford to get it wrong, so it’s best to chat to an expert who knows what they’re talking about. Our independent financial advisers can lay out what kind of insurance is on the table for your situation, and what level you should take out, depending on your needs. Best of all, their help is free of charge.

And if you want any other help or advice around ACC, such as how to reduce your levies (if you’re self-employed), just click below and we’ll sort the rest.

References

• HFANZ/NZPSHA Major Medical Research Rate, June 2015, 2017.

Bank or specialist KiwiSaver provider - which is safer?

There are roughly 25 KiwiSaver providers available to the public. 5 are banks, and the rest are what we call specialist providers.

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Banks: Are generalists, they do a lot of stuff. Bank Accounts, Mortgages, Term Deposits, KiwiSaver etc.

Specialists: Focus on KiwiSaver.

The main differences between the two:

1. The specialist providers only handle KiwiSaver investments, so they have more time to focus on getting the best returns. They have to perform well, because it’s all they do.

2. The majority of the banks offering KiwiSaver are Australian owned, with Kiwi Bank the only NZ-owned bank provider.

Most people want the higher returns that specialist providers can offer, but they wonder whether their money is safer if invested with one of the bank-run KiwiSaver schemes.

This question is totally understandable. However, once you look under the hood, it’s clear that our KiwiSaver money is just as safe with a specialist KiwiSaver provider.

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Here’s Why:

1. Regardless of who your KiwiSaver provider is, they can’t access your money directly in any way. No cheeky withdrawals, nothing.

2. Every major decision your KiwiSaver provider makes (such what fees to charge, investment decisions etc.) all have to be approved by what’s called a “Supervising Trust.” These trusts are all regulated by New Zealand’s Financial Markets Authority - Meaning your money is in good hands.

3. There are only 3 of these Supervising Trusts being used by the majority of providers. And the banks are using the same ones as the specialist KiwiSaver providers. Check the table below:

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KiwiSaver Trusts – Who uses who?

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When it comes to KiwiSaver; your level of risk depends on the type of fund your money is invested in (e.g. conservative, balanced, growth) - and not who your provider is.

If you’d like to know more about what these specialist providers can offer, the best step is to chat to one of our financial advisers. They work with a number of the best specialist providers, and can help you select a provider, and fund, that’s right for your unique situation. The best part is, their help is free of charge.

New Zealand is one of the most under-insured countries in the developed world.

We are good at covering our ‘stuff’ – but we ignore our most important asset.

Regardless of what you own, and how nice it is; car, house and boat, whatever – chances are none of these are your most valuable asset. The majority of us were never told that our most important asset is actually our ability to earn income in the future.

Think about it. For the rest of your working life, how much money are you going to earn? Will you spend the next 15 years on a $70,000 salary? That’s over $1,000,000. But what’s the plan if something happens that prevents you from working over that period?

Obviously this all depends on your unique circumstances, but for the majority of New Zealanders, we still have a lot of earning to do in the future, and no insurance in place for the unfortunate situation where they can no longer work.

No one tells us about, or explains, these kinds of insurances in a way that is easy to understand. So most Kiwis aren’t insuring this crucial asset.

Read more about how to insure your future earning here.

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We have a false sense of security about what ACC covers.

This is a big one. Most of us have heard of someone getting injured, so badly that they can’t work, and they get 80% of their income covered by ACC.

The problem is ACC only covers injuries that are the direct result of an accident. And even if ACC agrees to pay this 80%, there have been cases where the issue was caused by an existing medical condition, rather than the accident itself. For example someone hurts their back, but scans show a pre-existing back condition the person had. ACC may then stop all payments.

If that person had insurance, for example income protection (where the insurance company will pay 75% of your salary until you can go back to work) then financial stress wouldn’t be on their list of worries, and they can concentrate on getting better.

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We’re worried that it will cost too much. And we’re wrong.

Your level of insurance should be directly related to how much you can afford to pay in premiums. Depending on your situation, it could cost $10 a week, it could cost $50, but you decide on the level of cover.

Maybe you’ve got a mortgage, maybe you’re saving for a house or just had your first child – all meaning money is tight – no problem. Get the most important insurance in place and set it up to cost you only $20 a week. You might get slightly less of a pay-out in the event of something going wrong, but you will still be fundamentally covered.

If your situation changes and there’s a bit more spare cash, increase your level of insurance cover and up the premiums slightly.

Here is an example of cost:

• A 25-year-old non-smoking female - $100,000 of life and trauma cover + private medical cover = $18.50 per week.* Not so bad, right?

• A 35-year-old non-smoking male - $250,000 life and trauma cover + private medical cover = $25 per week.* That’s reasonable, and provides peace of mind knowing you’re covered.

*Taken as an industry average and is an estimate only. May differ based on individual circumstances such as job, smoking status and health conditions. An illustration will be done by an adviser based on your unique situation.

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There’s a voice in our head saying,  “she’ll be right”.

Classic. We probably don’t even need to tell you why this one is a no-no. But this is a really common Kiwi mentality when it comes to risk and we need to break it. The below stats aren’t designed to scare you, but rather to show how often these insurance policies are claimed by the people that are fortunate enough to have it in place.

Of the Kiwis that have...

• Medical Insurance – they will use their medical insurance an average of four times before turning 65.*1

• Income Protection – One in five of them will use their income protection. 81.8% of those in the hospital are there due to sickness, not injury.*2 What happens when their incomes stops?

• Trauma Insurance – the biggest claim will be for cancer – Cancer amounts for almost one third of deaths in NZ*3. Additionally, 2 out of 5 people will suffer a critical illness such as a heart attack or stroke.*4

• Life insurance – 17% of the women and 23% of the men will die before the age of 65 here in New Zealand.They are leaving behind a lump sum payment to support their family, even when they are no longer here.*5

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Using a financial adviser means that you’re much more likely to get the correct insurance (at the correct level) but most importantly, if you need to make a claim, your adviser will go to bat for you, and deal directly with the insurance company to make sure they pay out.

Further, your adviser will touch base every year to see if you need to change your insurance policy so it continues to meet your needs, i.e. get married, have a child, purchase a new home etc.

And remember, you don’t pay a cent for your adviser’s help - they just get paid a fee by the insurance company for setting it all up. Your insurance will cost the same regardless of whether you use an adviser, so it’s a bit of a no-brainer.

 

• *1: HFANZ/NZPSHA Market Research, March 2016.

• *2: Source HFANZ/NZPSHA Major Medical research rate June 2015

• *3: NZ Ministry of Health, NZ Cancer Plan, 2015-2018. 

• *4: Ministry of Health NZ, 2017. 

• *5: NZ Stats Archive, 2016. 

 

What is Ducks in a Row?

That's simple. So many of us are lacking in basic financial knowledge. Ducks in a Row is an online resource that exists to fill in the gaps.

Why are we here? Because they should have taught us this stuff at school. It's so important, because getting the basics wrong now can have serious consequences down the line. Not only can it negatively impact us as individuals, but our families too.

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We start with the fundamentals. Three pillars (or ducks, if you will) that are crucial for everyone to understand, and have set up correctly for their own unique situation.

1. Your Will

What happens to everything you own after you pass on?

2. Your KiwiSaver

Is your money with the best KiwiSaver provider and the best fund for your goals? Are you making the most of Government contributions? These questions can be worth hundreds of thousands of dollars by the time you retire.

3. Your Insurance

Do you have the best and most relevant insurance in place? Are you covered if something stops you from being able to earn? We're not just talking house and car cover, we're talking about the important stuff.

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Our online resources explain these three concepts in a simple, but informative way. Further, we have a small team of experts that can take a look at your situation, and make recommendations on how best to get your Ducks in a Row.

The best part: their help is free.*

Keen to learn a bit more? Good, that's what we like to hear.

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The easiest $521 you’ll ever earn. Free money from the NZ government.

If you don’t feel like you’re totally clued up on KiwiSaver- don’t fret, many of us aren’t. Read about the basics here.  

The government is willing to put $521 of cold hard cash into each of our KiwiSaver accounts, every single year. Unfortunately, thousands of Kiwis leave this money unclaimed.

It’s called a ‘Member Tax Credit’ – which is a weird name considering it has nothing to do with tax, it’s literally free cash in to your KiwiSaver account, once a year.

There’s no catch. This is just the government’s way of encouraging New Zealander’s to put money into KiwiSaver.

Over $1 Billion has been left unclaimed by Kiwis over the last three years.

A 25 year old, receiving the extra $521 each year would equate to an extra $20,840 by the time they can withdraw their funds at age 65. And this doesn’t even take in to account interest earned on the money over that period.

How to make sure you get your cash
For every $1 you put in to your KiwiSaver account, the government will contribute 50 cents, up to $521, every single year.

That means you only need to invest $1,043 into your KiwiSaver account each year to make the most of this government bonus.

To give you an idea, at a 3% KiwiSaver contribution rate, your yearly contribution  will be:

• $900 – on a $30,000 salary

• $1,200 – on a $40,000 salary

• $1,500 – on a $50,000 salary

A person on a $30,000 salary is missing out on a portion of their free money and to get the full $521 will need to contribute an extra $142.

If you’re earning $34,762 or more on salary - and you’re contributing the minimum 3% to KiwiSaver - then you’re automatically getting the full $521 free from the government each year. (If this is you, the next step is to make sure you’re not in a default KiwiSaver fund).

If you’re earning less than $34,762 per year, you can top up your KiwiSaver account manually, to make sure you contribute a total of $1,042 each year, and ensure you receive the $521 bonus payment from the government.

If you’re a stay-at-home parent, self-employed or on a contributions holiday,  you need to make sure you put in $1,042 each year so you still get $521 (this is about $20 per week). If this is a bit of a stretch, don’t worry, you’ll still get 50 cents on any other contributions you put in. eg $500 will get you $271 free money.

If this is all a bit confusing, and you don’t really really understand what’s happening with your KiwiSaver, talking to a financial adviser is the easiest way to get this sorted (remember, their help is free). Making your KiwiSaver work effectively is a simple process. You just need to have a quick chat with someone who knows what they’re talking about.

How does insurance actually work? (Everything you need to know in 2 minutes).

First, some definitions:

• Insurance = Basically, you pay an amount of money to an insurance company on a regular basis, so that if something bad happens, they foot the bill.

• Premium = Your regular payments to the insurance company. They could be weekly, fortnightly, monthly or yearly - Whatever you prefer.

• Policy wordings = The specific list of things that are covered under any given policy.

• Claim = When something bad happens, you tell the insurance company (make a “claim”). They then look at your policy wordings to check you’re covered for that event, and then accept or deny the pay out.

When you think about it, insurance is actually a great concept, as long as you get it right.

Good insurance is when you have the correct cover for your unique circumstances. And if/when something bad happens; the insurance company pays out like you thought they would.

There are a lot of examples of bad insurance, but some of the most common ones:

• Wrong cover – you think you’re covered for things that you’re not.

• More cover than you need – You end up paying more than necessary for your circumstances.

The whole point of paying for insurance is for it to work at claim time.

Some insurance companies get a bad reputation for not paying up when someone makes a claim. For example, you think your medical insurance covers you for the expensive medication, and you only find out it doesn’t, once you’ve been diagnosed with cancer. This comes down to people misunderstanding what their policy does and does not cover.

Using an adviser means that you’re much more likely to get the correct insurance (at the correct level) but most importantly, if you need to make a claim, your adviser will go to bat for you, and deal directly with the insurance company to make sure they pay out.

Further, your adviser will touch base every year to see if you need to change your insurance policy so it continues to meet your needs, i.e. getting married, having a child, purchasing a new home etc.

And remember, you don’t pay a cent for your adviser’s help - they just get paid a fee by the insurance company for setting it all up. Your insurance will cost the same regardless of whether you use an adviser, so it’s a bit of a no brainer.

Never picked a KiwiSaver provider?

That means you’re probably in a default fund, and may want to change. 

Like most of us, if you didn’t specifically choose a provider for yourself when you first signed up for KiwiSaver, Inland Revenue allocates you to one of nine default KiwiSaver providers.

This is to get you started, until you decide how you want to invest your contributions. The problem is, most of us haven’t touched it since, because we didn’t know we were supposed to.

By the way

Provider = the company that looks after your money. Each provider has a number of funds (usually 3-5).

Fund = Where the provider pools all their client’s KiwiSaver money, and invests it in various different places (eg shares, property, term deposits, bonds).

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A default fund is also known as a conservative fund. This means your money is invested conservatively (i.e. low risk = potentially lower reward). Over 90% of Kiwis are in this boat.

It’s not necessarily the best idea to be in a default fund.

Conservative funds and some of the default providers have relatively low rates of return. That means your KiwiSaver money may not be working hard enough for you, compared to your risk profile.

Over a lifetime this could mean missing out on thousands (potentially hundreds of thousands) simply because no one gave us the advice to change it.

The other issue with being placed in to a default fund, is that we are automatically put on the highest Prescribed Investor Rate (PIR) of 28%. This rate determines how much tax we pay on the investment profits out KiwiSaver accounts make.

For many of us, this 28% may be the incorrect tax rate, so we are paying more than we need to. Worst of all, this isn’t one of those “tax refund” situations. Pay too much tax here, and the money is gone. This is what is known as a “final tax.”

 

So, you’ve figured out you may be in a default fund… where to from here?

Which fund type you decide to go into depends entirely on your circumstances:

• A younger person may be more comfortable with risk, as they don’t plan to withdraw their KiwiSaver money until they’re 65 (They’re in it for the long haul).

• At the same time, they may need that money soon for their first home, and therefore might not be willing to risk it in a high growth fund.

There are fund types to suit every New Zealander, and you have the ability to customise them to reflect your attitude towards risk.

If you’re unsure, or just want a bit of help to figure out things such as your prescribed investor rate, we have a team of financial advisers on hand to help you choose the right one. The best part, their help is absolutely free. 

What is a Financial Adviser? And why is their help free?

Many New Zealanders don’t really know what a financial adviser does, or how to make the most of their advice.

In a nutshell – A financial adviser is one point of contact, who knows all this financial stuff, inside and out.

They’re independent, registered, and work with lots of lawyers, accountants, KiwiSaver providers and Insurance companies to make sure your ducks are in a row.

Your adviser is like your own personal ‘fixer’. If something changes in your life (like new kids, new job or a new house), they’ll help you adjust your Will, KiwiSaver and Insurance so it continues to meet your needs. But most importantly, if you need to make an insurance claim, your adviser will go to bat for you, and deal directly with the insurance company to make sure they pay out.

Who are Ducks in a Row’s advisers? Why use them over other Advisers?

Our team is pretty much the ducks nuts when it comes to financial advisers. We only work with a small group, handpicked based on their experience, honesty and success in the industry (and they’ve got hundreds of their own clients who vouch for them too). 

Not only will they get your ducks in a row, but our advisers will:

• Liaise with a lawyer to help create your Will.

• Help you create a unique KiwiSaver strategy tailored to fit your situation.

• Help you get the right insurance cover, at the best price.

Why is their help free?

You don’t pay a cent for your adviser’s help - they get paid a fee by the insurance company or the KiwiSaver provider for setting it all up (this is known as commission). This stuff will cost the same regardless of whether you use an adviser, so it’s a bit of a no-brainer.

Our advisers will never recommend you spend money when it’s not in your best interest. As we said, they’re good sorts. Not to mention, the law prevents them from putting their own interests ahead of yours.

Which KiwiSaver provider should I use? Aren’t they all the same?

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Nope.

They’re definitely not. If you’re contributing to KiwiSaver, it’s best to choose a provider, and then a fund, that’s right for you.

A basic note on what is happening with your money.

The money saved away in your KiwiSaver account will become pretty substantial over time. If it sat in the bank, it wouldn’t earn very much interest at all. Most people want their KiwiSaver provider to be investing their money in things that will earn them a decent amount of interest.

By the way:

Provider = the company that looks after your money. Each provider has a number of funds (usually 3-5).

Fund = Where the provider pools all their client’s KiwiSaver money, and invests it in various different places (eg shares, property, term deposits, bonds).

First, choose your provider.
Each provider has a slightly different offering. Some will be a better fit for you, depending on your preferences.

The questions you should be asking:

• How much am I comfortable paying in regular fees? This is a big one. KiwiSaver fees are big business, and some providers charge much more than others.

• Where am I comfortable with my money being invested? Also important. Some providers invest more ethically and transparently than others, e.g. they refuse to invest in tobacco or mining companies.

• What level of service do I expect? Do I want regular reviews, and updates about how my KiwiSaver is performing?

Then, choose your fund.

While all providers are different, their funds all follow the same general trend. They have:

• A  conservative fund: where your money is invested cautiously e.g. in big, stable companies or Government and Corporate bonds. You have less risk, but potentially less reward.

• A growth fund: where your money is invested more aggressively, potentially in high growth companies. You have more risk, but potentially more reward.

• A balanced fund: Somewhere in the middle. More risky than a conservative fund, but not as much risk as a growth fund.

You are able to split your KiwiSaver money across different funds. For example, someone may wish to have half their money in a balanced fund, and the other half in growth fund - In order to spread some of the risk.

Which fund you decide to go with totally depends on your circumstances.

• A younger person may be more comfortable with risk, as they don’t plan to withdraw their KiwiSaver money until they’re 65 (They’re in it for the long haul).

• At the same time, they may need that money soon for their first home, and therefore might not be willing to risk it in a high growth fund.

There are other factors to think about, like making sure your provider has your correct tax rate recorded. What does this mean? When your provider invests your KiwiSaver money, you will get returns on these investments. As with returns on all investments, these gains will be taxed. The amount you’re taxed depends on your yearly income. A common problem is that people are registered with an inaccurate rate. If you’re paying too much tax - i.e if your PIR rate is set to 28% instead of 17.5%, then we have a real problem. It’s not like other tax forms, this is final tax which means it’s non-refundable.

If you’re unsure, or just want a bit of help, we have a team of financial advisers on hand to help you choose the right one. The best part, their help is absolutely free.

Insuring yourself

There are two main types of insurance

Insuring your stuff - The basics. We're pretty good at this. 

Insuring yourself - This is where most people fall short. What happens to you and your family if you can no longer earn an income? Who will cover the mortgage? How will you afford to live?

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There are four ways to insure yourself

1. Medical Insurance

• Pays for medical bills if you get sick

• Provides private treatment straight away (no waiting for months)

• Gives you access to non-pharmac approved drugs by subsidising them. (ie expensive cancer treatment)

• Kiwis use medical insurance an average of four times before turning 65

2. Income Protection

• Pays a percentage of your income if you can no longer work.

• Most people are off work long-term due to illness, not accident (therefore not covered by ACC).

• One in five Kiwis will use income protection in their life (even for a short amount of time, it pays to have the option).

3. Trauma Insurance

• Pays a big lump sum of money if you are diagnosed with a serious illness.

• Biggest claim is for cancer - one in three Kiwis claim their Trauma pay out.

• Can be spent on whatever you like ie pay your mortgage off, alternative treatment etc.

• If you don't have an income (ie a stay-at-home parent) this money can be used to replace your income protection.

4. Life Insurance

• Your family gets a big lump sum payment if you die or are diagnosed as terminally ill.

• Gives financial stability to your loved ones, even if you're not around. To pay off debt, and provide ongoing support for your family.

• Who do you want the money to go to? You need to specify in your Will, otherwise, the court decides.