Non-KiwiSavers miss out because of misinformation
Sometimes it’s not so much what you don’t know but what you misunderstand that hurts you. That came through loud and clear in my recent reader survey about KiwiSaver.
Of the 242 who responded, 77 are not in the scheme. Many of their reasons for not joining are based on false information — which means they are missing out on their fair share of the bounty.
Here are some examples of what they said, and why it’s incorrect:
- “It seems scary that you can’t access the money.” You can get at least some money out under several circumstances, including financial hardship, serious illness or to buy a first home. And if you leave New Zealand permanently you can withdraw most of your savings.
- “The tax credit should be available to the self employed.” It is.
- A reader said he would join “if you can stop paying if you need to.” You can stop contributing at any time if you are not an employee. Employees generally have to contribute for a year, but they can stop earlier if they experience financial hardship. And after a year, any employee can take a contributions holiday and renew it all the way to retirement.
- A reader who is under 65 is not in KiwiSaver because he is retired. But anyone under 65 can join, and the way the numbers work it’s a particularly good deal for those over about 55.
- “I figure that I am better off pouring as much into my mortgage as I can. Any gain I make in KiwiSaver over the same period is more than wiped out by the additional interest I have to pay on my mortgage.” Because of the incentives, KiwiSaver is better than mortgage repayment. The only possible exception is for under 35 non-employees.
Other readers’ objections don’t bear much scrutiny:
- A reader dislikes being messed around “by the government of the day. I have no confidence that the top-up will continue.” Fair enough. But if the tax credit were discontinued, you could simply stop contributing — although if you were an employee you would have to wait until your first year ended. You would probably then feel, “I’m glad I was contributing while the going was good.”
- “I’m not convinced that it’s worth joining without the employer subsidy of 2 per cent — aside from the $1,000 kick-start”. This is clearly from a non-employee. If he contributes up to $1,043 a year, that will be matched by the tax credit. Double the money in means double the retirement savings. It’s well worth joining.
There were, of course, some sound objections. The most common reason for not joining was difficulty in choosing a provider or fund — which is why my new KiwiSaver book includes extensive information about who offers what. And many objected to not getting access to the money until NZ Super Age.
Added one, “The majority of the million members are probably middle income. Sure hope that it doesn’t contribute to increased disparity of wealth.” Me too. Which is why I try to encourage practically everyone to join.
Those who took part in the survey were entrants into a draw to win a copy of my new book, “The Complete KiwiSaver”. The winners — mainly women because that’s just how the random numbers fell — are as follows. Random House has put your books in the mail.
Anne Cameron, Wellington; Patricia Bishop, Napier; Jenny Collins, Plimmerton; Mike Harker, Christchurch; Angela Ibbotson, Upper Hutt; Tony Jack, Christchurch; Lee Pepping, Havelock North; Jan Pickering, Oxford; Jenny Robertson, Wellington; Karen Strydom, North Shore City.
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.