Big changes to Kiwisaver – How do they affect you?
The short version is that:
- You can now contribute 6% or 10% of your salary as your regular contribution to your KiwiSaver account;
- If you take a contribution holiday, you now only have one year to renew it;
- You can now open a KiwiSaver account even after you turn 65.
The above changes are now contained within a Bill in parliament that is in the process of being written into law over the next few months. Any changes are expected to take effect from 2019.
More options for how much you contribute
As per current rules you can contribute 3%, 4% or 8% of your salary/wages to your KiwiSaver account. It is up to you as to whichever tier you pick. Today’s changes announced by the Government mean that now you can choose 3%, 4%, 6%, 8% or 10% of your salary/ wages as your contribution rate.
So, if you had wanted to put aside more into your retirement fund but couldn’t afford the jump from 4% to 8%, you now can choose to contribute 6%. And, if you have some more lazy money floating around that you have been wanting to put aside then you can also choose 10% to be allocated to your KiwiSaver account.
If you are wondering what that means for you in dollar terms here’s what it means. A 30 year old today earning $60,000 in annual salary and contributing 4% will have about $670,000 in retirement in a fund earning 6% p.a.
Now, if they increase their contribution to 6%, in the same fund, they will have $830,000 – an additional $160,000!
Our Kiwisaver fund comparison tool has been updated to reflect the new contribution rate options. Check it out!
Squeeze on contribution holiday
About 135,000 Kiwis are on contribution holiday. What does that mean. Well, currently you are able to choose to temporarily halt your contributions into your KiwiSaver account for up to 5 years at a stretch. You can then at the end of 5 years choose to keep renewing that for another 5 years and keep going till you hit 65.
With todays changes any contribution holiday will be valid only for up to 12 months. After which you will have to apply for another another holiday for up to 12 months and so on.
In some ways, this is probably a good thing. Unless you are in dire financial trouble it’s always best to put any little something you are able to towards your retirement. Having to renew contribution holidays each year may discourage some Kiwis from giving into the temptation of using the facility unnecessarily.
Turned 65? You can now open up a KiwiSaver account
As per rules, only those under the age of 65 can open a KiwiSaver account. With today’s changes you can open a KiwiSaver account even after you turn 65.
Given our life expectancies are on the rise, someone at 65 today may well have an investing time frame of 30 years ahead of them. Why is that fact important? The idea is you are able to outlive your money in retirement. Say you live up to be 95 – that is 30 years from today – are you in the fund that’s going to grow fast enough to achieve that growth in your savings over the remaining years? We’ll address that in another blog.
For now, if you are joining KiwiSaver after you turn 65, remember to choose funds that are appropriate for your investment timeframe.