Can’t afford KiwiSaver or saving elsewhere?
You should still join
Close to half of New Zealanders 18 and over who haven’t yet retired say they are unlikely or very unlikely to join KiwiSaver, a recent AMP survey shows. But a glance at their reasons for not joining suggests they don’t yet understand the scheme’s flexibility. They are missing out needlessly.
Broadly, the two most common reasons were that survey respondents were already saving through other means, or that they couldn’t afford it. Firstly, let’s look at the first group, and their alternative savings:
- A private pension scheme. There’s no denying that some work-based schemes have more generous employer contributions than KiwiSaver. And many companies won’t contribute to both.
Still, other schemes don’t give you a one-off $1,000 kick-start or tax credit of up to $1,042.86 a year. I suggest that those in other schemes also join KiwiSaver, perhaps contributing for just a year and then taking a contributions holiday.
If it’s a struggle to do without the money, it would be worth using other savings to get you through the year.
The way the numbers work, if you earn less than $25,000, by the time you receive the kick-start and tax credits your KiwiSaver balance will be at least three times what you put in — and that’s without any employer contributions. If you earn less than $12,500, the balance will be at least four times what you put in.
On higher pay, the boost is proportionately smaller. But even those earning $100,000 and contributing $4,000 in that first year will receive a government bonus of more than $2,000.
The numbers are impressive. And if you invest in a conservative KiwiSaver fund, your investment will be low-risk.
- Rental properties. You too would be silly not to join KiwiSaver for at least a year. What’s more, if you are not an employee, you can do KiwiSaver minimally.
One option is to find a KiwiSaver provider that will accept just a few dollars. You’ll still get the $1,000 kick-start and your contribution will be matched by the tax credit.
But to maximize the government’s contribution, contribute $20 a week or $86.91 a month. That totals $1,042.86 a year, so you will get the full matching tax credit.
- Shares, a share fund, bank term deposits or other financial instruments. You can probably make similar investments within a KiwiSaver fund and gain from the incentives.
True, you would tie up the money, in most cases until you reach NZ Super age, so you might want to contribute only 4 per cent if you are an employee or $20 a week or $86.91 a month if you are a non-employee, and make other savings elsewhere. But it would be a pity to miss the KiwiSaver incentives.
What about the second group, who say they don’t earn enough or have too many other financial commitments to join KiwiSaver?
I urge you, too, to do whatever you can — including adding to your mortgage if necessary — to contribute to KiwiSaver for a year. It’s well worth it.
This is not to say that anyone shouldn’t stay in KiwiSaver beyond the first year. The tax credits — and employer contributions, where applicable, if they are passed into law — make KiwiSaver highly attractive on an ongoing basis. But the kick-start makes the first year particularly good.
Footnote: Tax credit payments will be made once a year, some time after June 30, reflecting your contributions in the previous 12 months. So there’s a wait to get the money. For details, see the bottom of the KiwiSaver book page on www.maryholm.com [This page has been removed from the website. Visit kiwisaver.govt.nz for up-to-date information.]
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Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it.