Let’s get straight down to business…we are going to dig into the pros and cons of the KiwiSaver. But first, let’s answer this question, What is it?!
The KiwiSaver is a voluntary work-based savings initiative in New Zealand that helps residents to set up nicely for retirement.
There are several options within the scheme, all of which are designed to be a hassle-free solution to long-term saving:
- Regular contributions from your employer – most members will accumulate savings through regular contributions coming from their pay. You can choose to contribute 3%, 4% or 8% of your gross wage or salary to your KiwiSaver account. Your employer then has to contribute to this as well, with at least 3% of your gross salary.
- Annual member tax credit – This is paid by the government and to receive the full member tax credit you must contribute at least $1,042.86 per year. This amount is currently set at $521 per year.
The government also used to offer a $1000 “kick starter” for those new members joining the system. The latest news here is that on 22nd May 2015 the Budget for 2015 was announced, the NZ government have said due to the great success of the Kiwi Saver Scheme (over 2.5 million people have signed up for it!) they no longer see reason to incentivize the scheme to newcomers. Therefore the $1000 kick starter has been scrapped! The government provided this tax-free contribution to get you off to a good start! This can now certainly be seen as a disadvantage of the KiwiSaver scheme, but don’t let that put you off…
What you can use it for:
- Deposit on your first home – You can withdraw money from your KiwiSaver account to purchase your first home if you’ve been a member for three or more years. (You cannot use this for an investment property though.)
- Grant for your first home – You may be entitled to a grant for your first home or land if you’re planning to build. This is known as the KiwiSaver HomeStart Grant which was rolled out on the 1st April this year. Read more about the necessary criteria for this here.
- Save towards your retirement…ahem!
Who can apply?
For someone who has a temporary residency, you may be thinking that these options won’t apply to you if you’re not necessarily staying in NZ long-term. However, they actually apply to all residents and NZ citizens as long as you meet the varying criteria for each option. If returning to your home country you can claim the money back after a year of being away from NZ. (This includes the kick starter if you signed up in time before they scrapped it!) You must also be under the age of eligibility which is currently 65 years.
How to Join:
You can join the KiwiSaver in the following ways:
- Automatic enrolment when you begin a new job
- Opting in through your employer
- Going through a KiwiSaver provider
If you’re self-employed or unemployed, you can still join by contacting a KiwiSaver provider and arranging a regular voluntary contribution amounts. Check out the IRD website for a list of KiwiSaver providers.
The Pros and Cons of the KiwiSaver:
As you’ve already seen, the benefits of the KiwiSaver are plentiful: government grants combined with employer contributions offer a great way to help people set themselves up for the future and make their money go further. I mean…your employer is emptying there pockets further and helping you save!
Having regular contributions in place makes saving easy, and what’s more, if you move jobs then the KiwiSaver account moves with you. The account is also flexible in that you can take a ‘holiday’ from saving or make lump sum payments. You can find more information about this here.
You may also be able to withdraw all or some of these savings early under certain circumstances, including if you’re buying your first home, emigrating or suffering financial hardship or serious illness.
So what about the disadvantages of the KiwiSaver?
Several concerns over the effects of the initiative have been raised. For instance, while this scheme undoubtedly offers people an effective method of saving, there’s evidence to suggest that this can be used as a substitute for other forms of saving. Interest rates are far lower than the saving accounts that are available in NZ and this fact should not be ignored. People may well see this option as satisfactory enough, and not think to manage their own finances to accommodate for the future.
The initiative is arguably quite rigid in its structure and doesn’t take into account people’s varying situations, and whether this is the best form of saving for their individual needs. It also detracts from more imaginative and advantageous forms of saving: for some the best choice might be repaying a mortgage, investing in a business or farm, or perhaps acquiring financial assets. (Not to mention the fact that some individuals may be better off not saving at all in that stage in their lives.)
You can’t dip in and out of your savings like you can with other accounts. If you’re using KiwiSaver for your retirement then you can’t touch your money until the age you get New Zealand Superannuation (NZ Super) which is 65. If you’re between 60 and 64 years old when joining then you can’t touch your money for 5 years.
All said, it’s advisory that you look into the KiwiSaver options available to you and how you can use these to meet your future goals. You can easily track your balance online and don’t forget you can get all the money back if do decide you leave the country in the future. However, it is also important not to dismiss other forms of saving (the interest rates are not great) that could provide you with additional benefits more suited to your individual needs.