Site Designed By Airnet

Look before you leap

 

Q. I work for the Government and have had a super scheme running for about 12 years.  It is the SSRSS one that has been closed to new members for some time now. Recently I was approached by a financial advisory company’s representative to look at possibly changing to KiwiSaver and closing my SSRSS account.  I'm no financial genius and just like to set things up and let them run along as I get on with life.  Is there any serious reason why I would be better off swapping to Kiwi Saver?  I am 55.

 

A.  Most people like to ‘set and forget’ their retirement savings but it is important to be in a scheme that is right for you.  Switching from one scheme to another should not be done without careful consideration.

Be aware that only an Authorised Financial Adviser or AFA can give personalised advice on KiwiSaver.  What the company representative you mention was doing was giving you ‘product replacement advice’.  Was he an AFA?  Did he make an appropriate comparison, providing detailed analysis and demonstrating knowledge of both the existing and the recommended product so that the advantages of the replacement scheme could be clearly demonstrated?  All AFA’s are required to place the interests of the client first.  Product replacement must be in the client’s best interests and not simply to generate a bonus or commission for the adviser. 

Let’s look at your current scheme.  SSRSS is the abbreviation for State Sector Retirement Savings Scheme.  The scheme stopped accepting applications for new members from 1 October 2008 as KiwiSaver is now our official superannuation scheme.

 

Your query is a familiar one and the official SSRSS website at www.superscheme.govt.nz has a useful comparison between it and KiwiSaver.  I will disregard investment returns and tax treatment, as neither scheme has an advantage over the other in respect of either of these factors. 

 

It comes down to the benefits, and the terms and conditions of each scheme.

 

You will most likely have been contributing 3% with the Government (your employer) matching it with 3%.  Up until now this will have been the better option as employers have been required to contribute first nothing, then 1% and now 2% to employer KiwiSaver schemes.  Even the Member Tax Credits will not have been enough to make KiwiSaver more competitive, as your 3% from the Government has been the better option.

 

From 1 April 2013 employer contributions to KiwiSaver will rise to 3%, matching the SSRSS scheme. 

 

But in making your decision you can’t just look at the numbers.  There are also different terms and conditions, particularly regarding the rules on accessing your funds.  Currently a member of SSRSS can access their savings at age 65, or 10 years earlier if they are partially retiring and have no intention of increasing their hours of work, or at age 50 if they retire from State sector employment and have no intention of re-employment in the State sector.  This is more flexible than KiwiSaver, which generally cannot be accessed until age 65 (except for first home purchase, hardship or permanent emigration).  Given your age, this is a very important benefit and I would question the advice of the fund manager rep to close your SSRSS scheme and move the proceeds to KiwiSaver, as this will lock up your savings for a longer period with no obvious advantage to you.

 

There is nothing to stop you from joining KiwiSaver and running it alongside the SSRSS scheme.  You could contribute $20 a week directly into your KiwiSaver account.  This may give you the best of both worlds as you would get the $1000 ‘kickstart’ and $521 each year in MTC (for as long as they continue), but retain the early access benefits of the SSRSS scheme, should you decide to retire before 65. 

 

Shelley Hanna is an Authorised Financial Adviser FSP12241.  Her disclosure statement is available on request and free of charge by calling 8703838.  The information contained in this article is of a general nature and is not intended to provide personalised advice.  If readers have any KiwiSaver questions they would like answered please go to www.peak.net.nz or email shelley.hanna@peak.net.nz.

Published in the Hawkes Bay Today 12 February 2013