Kiwisaver is a voluntary savings scheme to encourage New Zealanders to save for their retirement.
I believe that you should understand more about Kiwisaver before you voluntarily sign up, or are automatically enrolled when starting a new job.
Note that when you start a new job, you can only opt out between 2 and 8 weeks of starting your new job.
I want you to be able to make an informed and educated decision as to whether Kiwisaver is right for you, so I’ve listed the pros and cons below.
- Member tax credit of $521.43 annually if you contribute at least $1042.86 annually
- Compulsory employer contributions (currently 3%)
- You may be able to withdraw your contributions and your employer’s contributions towards a deposit on your first home
- You may be able to get a first home deposit subsidy
- After 12 months in the scheme you can take a contributions holiday for up to 5 years
- Once you’re in, you’re in! If you choose to join a Kiwisaver scheme, or you neglect to opt out in the 6 week window after starting a new job, then you can never opt out.
- Your Kiwisaver contributions will be deducted from your wages at a minimum of 3%.
- The Government can change the rules at any time – they have already reduced the member tax credit, removed the $1,000 kickstart, and increased the minimum contributions.
- In most cases you cannot access the money until you reach retirement age. At present this is 65, but it is likely to rise.
- Employers are becoming wise to the compulsory contributions and are starting to write these into employment contracts. Clauses such as “remuneration will be $55,000 per annum, and includes any employer obligations to Kiwisaver” will become more common. This could well mean that you will be losing 6% of your pay (assuming employee and employer contributions are 3% each).
- There are conditions attached to the first home withdrawal. These include that you must have never owned a property before (or be able to prove that you are in the same position as a first home buyer), and you must be going to live in the property for at least 6 months.
- Don’t rely on the first home deposit subsidy. This has a lot of conditions attached, including a cap on the value of the property you can purchase.
- You cannot borrow against your Kiwisaver investment
- There is a lost opportunity cost to you by locking that money away for such a long time
- You are placing your trust in whichever managed fund scheme you choose to belong to. You generally don’t get to pick the individual investments that your fund invests in. Some funds, however, do allow you more opportunity to tailor your share portfolio, and some do invest more into property than others.
Some issues that are starting to appear:
If the best way for you to afford your first home is to purchase it with a family member and rent it out for a few years, you will not be able to use your Kiwisaver towards this.
If you sign your children up to Kiwisaver, they will have to contribute a minimum of at least (most likely more than) 3% from their wages when they start work.
If you are not working and contributing to your Kiwisaver fund, the balance may actually fall due to the scheme’s fees.
Would I recommend joining Kiwisaver?
If you are between 55 and 60 then you only have to be in the scheme for 5 or 10 years (until age 65), so the opportunity cost to you of locking the money away for this time is not too large.
I would not recommend Kiwisaver to:
- Anyone who is already struggling to make ends meet.
- Anyone who has high interest debt
- Anyone under 18
I think it is ethically wrong to saddle your child with an unearned obligation to contribute a percentage of their wages to a scheme that they did not choose to belong to. Whether you believe it is a good idea or not, it just doesn’t seem right to me. Just open them a savings account and don’t tell them about it until they are old enough to understand the value of money.
There are not many sites that actually spell out the downsides of Kiwisaver. Most of the information on the internet is produced by those companies who are offering to be your Kiwisaver provider.
I’d be keen to hear your views on the Kiwisaver scheme.