KiwiSaver, changing New Zealand’s savings and investment landscape.
KiwiSaver is a Government initiative designed to encourage and empower New Zealanders to save for their retirement. From 1st April 2013, employees are able to contribute either 3%, 4% or 8% (their choice) of their gross income to an investment known as a KiwiSaver Scheme. Most new employees will automatically join a scheme when they start a new job, although they can choose to opt out if they wish.
If they don’t opt out, their KiwiSaver contributions will be deducted from their wages, much like their PAYE tax.
Employers must contribute 3% to their employees’ KiwiSaver accounts. This has made KiwiSaver even more attractive to many New Zealanders. Further sweeteners include tax breaks and access to your investment to assist with home ownership.
Everybody will be able to have their own KiwiSaver account and will have access to this at the ‘age of entitlement’, currently 65.
What are the issues?
KiwiSaver will not be right for everybody. While there are some meaningful incentives, some people should opt out and everybody should seek professional advice before investing.
The actual investment scheme selected could make a massive difference to the performance of a persons KiwiSaver contributions over their lifetime. A 1% increase in performance over 30 years results in a 20% difference in the final amount available. Again, it is vital that every investor seeks advice as to which of the numerous KiwiSaver Schemes is right for them.
Default Schemes – If you do not choose a scheme, the Government will pick one for you. If this sounds crazy to you, do something about it and get advice about what scheme is right for you.
KiwiSaver does not take into account an individuals’ specific investment goals. For example, if you hope to retire before age 65, you should not rely on KiwiSaver alone and if you aim to accumulate a certain lump sum, this may require contributions of greater than 3%, 4% or 8%.
What to do next?
If you are an employer, there are great information packs available to help you make the right decisions for you, your business and your employees.
If you are an employee (or self employed) you should seek personalised advice with a KiwiSaver expert. They can help you to determine (A) if KiwiSaver is right for you, and (B) which of the many schemes will best meet your investment goals.
This information is designed to provide readers with a general understanding of what KiwiSaver is and how it will impact or benefit some New Zealanders. It is not intended to replace personalised advice.
Did You Realise…..?
There’s a lot of misinformation about KiwiSaver. Here are some key points to understand.
- All non-employees, including beneficiaries and the self employed, can afford KiwiSaver. They can join some KiwiSaver schemes and never make a contribution and still get money from the Government.
- Most employees can afford it. While they will have to put in 3% of their pay for a year, after that they can stop all contributions and 3% is manageable.
- The KiwiSaver incentives can in many cases, double and sometimes triple your money – hugely boosting your returns.
- The first year is even better for everyone. People with lower incomes can be boosted more than ten-fold.
- Not all KiwiSaver account balances are volatile. In some schemes your balance is likely to always grow, never fall – like a bank savings account.
- You don’t have to pay tax to get the so-called tax credit. It’s given to all KiwiSaver Members aged 18 to 64.
- Many KiwiSaver investors will pay lower tax than they would on most other investments.
- If you don’t normally file a tax return, that won’t change because of KiwiSaver. Tax is taken care of in the KiwiSaver scheme.
- Over the long term, mucking around for a couple of years before you join means you miss out on heaps in retirement – around $100,000 for some young people.
- KiwiSaver is more flexible than many realise, allowing you to vary your contributions and to invest in a wide range of assets, including property.
- Non-employees can stop contributing at any time, and employees can stop after a year, with no questions asked – or earlier if they are in financial difficulties.
- If you stop working, you can stop contributing to KiwiSaver straight away.
- While on a contributions holiday, you can still put in any amount you choose, including $1,043 a year to maximise the tax credit.
- KiwiSaver schemes are not like finance companies. Take advice and there is very little chance you will lose the money you put in.
- Drip-feeding into KiwiSaver makes it pretty painless – and also happens to be the best and least worrying way to save.
- When you die – before or after retirement age – your KiwiSaver money is paid to your estate, available for your heirs to spend.
- Distrust of the Government is no reason not to join. There is nothing a Government is at all likely to do that would make you wish you hadn’t joined KiwiSaver.
Disclaimer: This website is operated by DecisionMakers and is not endorsed by, or affiliated with, the New Zealand government or Inland Revenue. DecisionMakers is using the KiwiSaver trade mark and logo under licence from Inland Revenue. To view the official New Zealand government KiwiSaver website, please click here.