Important changes were made to KiwiSaver recently. These developments, to be implemented in three stages, will give more people a chance to join KiwiSaver and will also provide greater flexibility on how we manage our funds. Here’s what you need to know.
More contribution options
Two new contribution rates have been added – 6% and 10%. KiwiSaver members can now choose to contribute 3%, 4%, 6%, 8% or 10% from their wages. These options give you greater flexibility over your savings. If you are saving to buy your first home, you could increase your contributions to get to that deposit goal faster, and then bring contributions down once you are paying a mortgage.
On the other hand, if you have paid your mortgage, you could increase your contributions to start focusing your energy on your retirement savings.
A small change can make a big difference. As an example, if a 35-year-old with $25,000 in KiwiSaver funds, with a salary of $50,000 per annum, would raise the contribution rate from 3 to 4 per cent they would have approximately $40k extra by age 65. Source
No more ‘holidays’
“Contribution holidays” are now called “Savings Suspension”. Suspension will be for a maximum period of one year, down from five years. Members can extend the suspension every year if needed – giving you a chance to reconsider your decision annually.
When you put your contributions on hold, not only are your accounts not growing, you are also missing out on your employer’s contributions, the Government contribution (up to $521 a year) and returns from your investments. Source
Member Tax Credit (MTC) renamed
This is now known as “Government Contribution” and is paid each year around July/August into your KiwiSaver account by the government. You can receive up to $521 a year by contributing $1,042.86 annually. If you contribute less than that from your pay, you can make voluntary contributions to ensure you receive the full $521. We are nearing the end of the KiwiSaver year (30 June), so remember to make any additional payments as soon as you can to get the full government contribution.
65 year olds (and above) are now able to join
The KiwiSaver scheme is now open to people of all ages and new members will no longer be locked in to the scheme for five years. Members between the ages of 60 to 64 (inclusive) who enroll on or after 1 July 2019 will be able to withdraw their KiwiSaver funds at 65.
Also, if you joined KiwiSaver before July 2019 and were aged between 60 and 64 when you enrolled, you can now opt out of the 5-year lock in period any time after you turn 65. However, this means you will no longer be eligible for compulsory employer contributions or the government contribution.
More information on these changes can be found on the IRD website.
There are currently more than 2.7 million KiwiSaver members, with $47 billion in funds. KiwiSaver is a great tool for saving for retirement or your first home, and it is structured in a way to make it simple for Kiwis to build their nest egg.
If you would like to make sure you are making the most of your KiwiSaver, you want to join or just change your contribution rate, please get in touch, we're here to help.