Revitalise your KiwiSaver
Holidays are fun. But not if they put you into poverty.
More than 1.1 million people in KiwiSaver don’t contribute. Members can take contribution holidays of up to five years, reducing to one year from April 2019. Many may retire with no more than basic NZ Superannuation, which will only cover minimums.
Last November, AMP surveyed 506 KiwiSavers not contributing. Reasons included low incomes and not being in paid employment.
Conventional wisdom says low earners can’t afford to save.
My interest was piqued when the Ministry for Social Development’s Sonya Cameron said at a Financial Capability Summit that research with low-income clients shows saving is dependent on motivation, not income.
Worryingly, the AMP research found some employers encouraged employees not to invest in KiwiSaver. Pity them. Even the $521.43 annual tax credit will grow to more than $36,000 in retirement.
Here are five reason to restart.
This is no holiday
The term “contribution holiday” will be renamed “savings suspension” – a change campaigned for by the Commission for Financial Capability. I’d also rename the tax credit the more appealing “bonus”.
No one else will look after you
We live in a society where you sink or swim on your own, albeit with a safety net from Work & Income.
No one is going to top up your NZ Super if you don’t save now.
I’ve heard investors say they could do better than a KiwiSaver manager. This might be true. But they won’t be getting the tax credit each year and many find reasons to dip into non-KiwiSaver savings.
Putting a mere 3 per cent of your income into a relatively safe bet such as KiwiSaver is a good way to get a nice bonus come retirement.
Keep up with the Joneses
Ask how much others have in KiwiSaver. If they’ve been squirrelling away since day dot they will have tens of thousands.
The longer you leave restarting payments, the bigger the gap will get between you and them.
Simplicity KiwiSaver chief executive Sam Stubbs stuck his head over the parapet at the CFFC annual summit in June to say what many others dare not. He called it “the C-word”: Compulsory.
Most Aussies are very pleased with compulsory superannuation.
Yet it will take a brave government to do so here because it was voluntary to start with.
The people who are most likely to benefit from compulsion will be those who haven’t joined or are taking these so-called holidays.
There is an argument that if we all have KiwiSaver then NZ Super will be canned.
It might. But that’s a reason to have more, not less, saved.
Make most of compound growth
When your returns earn their own returns your savings get supercharged, says Tom Hartmann, resident blogger at Sorted.org.nz.
My own KiwiSaver pot is more than double the amount I contributed into it thanks to this compounding effect of investment growth on investment growth.
Every contribution nudges my KiwiSaver higher, but compounded growth on earlier contributions has an even bigger effect.
Think about the free money
The $521 isn’t the only “free” money in KiwiSaver.
There is also your employer’s contribution, assuming they don’t make you pay that (as some do).
AMP found only half of the nonpayers were even aware their employer must match their contributions up to 3 per cent.
If you haven’t yet bought a house, the KiwiSaver HomeStart grant can add up to $20,000 of free money per couple for a new home and $10,000 for an existing home.