Giving a toddler KiwiSaver
It can be done but there’s red tape to negotiate, writes
QI am thinking of opening a KiwiSaver account for my 2-year old grandson and putting in a lump sum. How do I do it? Can you recommend a high-growth provider? At his age he can afford to take a few risks. Would he be eligible for the annual Government top-up? A Opening a KiwiSaver account for grandchildren is a great idea, but there is red tape involved. You can’t do it yourself. As he is under 16, the application must be signed by both parents or guardians. His parents surely will be delighted you intend investing a lump sum on his behalf. The money will have many years to grow and will be a great help to him one day either when buying his first home or further down the track as retirement savings.
What is more important to you — ease of setting up the account, or returns?
If returns are most important, use the FundFinder tool on the Sorted website. There you can sort over 260 KiwiSaver funds according to fees and performance. The usual warnings about past performance apply, but the ranking is very helpful in sorting the wheat from the chaff. There are 63 growth funds listed. The average return is 6.10 per cent per annum over the past five years to June 30, 2020. If you drill down you will see that the top-performing fund has averaged 14 per cent per annum while the worst achieved just 2.82 per cent per annum. Both were singlesector funds from the same provider
— the first investing in NZ shares and the other in Australian shares. You would be wise to choose a diversified growth fund rather than putting all your eggs in one basket.
You can select a provider from this list and contact it for help in signing up your grandson. Some providers allow new members to sign up online. If you choose this option, the child’s parents will have to upload images of either their driver’s licence or passport plus the child’s birth certificate. They also enter their home address, and this is verified online. The child must have an IRD number to join KiwiSaver (if his parents didn’t apply for this when they registered the child’s birth they can submit an IR595D form).
If you prefer to deal with a “real person” then consider a provider that the child’s parents have an existing relationship with (either a KiwiSaver account or bank account). They will need appropriate ID for themselves plus the child’s birth certificate.
It is important to consider the impact of fees. The FundFinder tool is helpful here. Returns are quoted after fees, but in the case of children it is the monthly admin fee that you have to watch out for. At about $3 per month it can have more impact on a low-balance account than the fund manager’s fee. A small number of fund managers waive the admin fee for children and that can be very helpful.
Your grandson won’t receive any Government contributions until he is older. These start at age 18 and work out to $10 per week for every $20 or more that he contributes. Shelley Hanna is an authorised
financial adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 06 870 3838 or going to peak.net.nz.
The information contained in this article is of a general nature and is not personalised. Send your questions
about KiwiSaver to shelley.hanna@peak.net.nz