KiwiSavers warned on contributions discipline
Young people show surprising ignorance when it comes to their savings, writes Susan Edmunds.
Most young KiwiSaver members are planning to use the savings scheme to get into a first house, not provide for their retirements.
But many lack basic information about their investments.
New data from Westpac shows 74 per cent of those aged 18 to 24 said the main reason they were in the scheme was to save a firsthome deposit. That compares to 59 per cent of those aged 25 to 29.
Just 16 per cent of people aged 35 to 54 wanted the scheme to get them into the property market.
KiwiSaver members can withdraw their money to buy a property after three years of contributions.
If they meet income and price caps, they can also qualify for a HomeStart grant of up to $5000 each (or $10,000 per property) for existing houses or $10,000 each for the purchase of a new property.
Westpac NZ general manager of consumer bank and wealth Simon Power said the survey showed KiwiSaver now had a dual focus for many people.
‘‘This reinforces how integral KiwiSaver has become for many New Zealanders. Many young people will use it once to help accumulate a deposit for first home, and then use it again to start rebuilding their nest egg for retirement.
‘‘Owning a home is very positive to financial security, but the key is to maintain KiwiSaver contributions after purchasing the home so that retirement savings don’t fall behind.
‘‘It can be tempting to leave it for a year or two which can easily
‘‘The key is to maintain KiwiSaver contributions after purchasing the home so that retirement savings don’t fall behind.’’ Simon Power of Westpac
become longer. It’s important they start saving again quickly.’’
The survey also showed young people were more likely to be in a defensive or conservative fund.
Generally, investors are told that they can take more risk with their investments if they have a longer period of time before they need the money.
Power said first-home buyers might need a more conservative fund to ensure the money was there when they needed it for a deposit.
‘‘Others may be better suited to a different product,’’ he said.
‘‘Depending on their appetite for risk and how soon they’ll need to make a withdrawal from their KiwiSaver account, some of those people might want to review whether the type of fund they’re in has the right balance of risk and potential return to give them the kind of retirement they are seeking.
‘‘In particular, if people are in a default fund, they should consider making an active choice so they end up in the right fund for them.’’
Just 24 per cent of millennials said they had worked out how much they would need in retirement.
Only 44 per cent said they had a good understanding of their KiwiSaver scheme and 42 per cent said they were confident about how KiwiSaver worked.
Westpac head of private wealth management Katie Christoffersen said she was surprised how many young people did not even know where their money was.
Twelve per cent did not know which provider they were with. She said that made it impossible for them to gauge whether they were on track.
They could contact Inland Revenue to tell them, she said.
‘‘From there you can get a good understanding of where it is and how it’s working.’’
Christoffersen said the decisions young people made about their KiwiSaver accounts were vital because the power of compounding interest boosts returns across a person’s lifetime.
‘‘Early decisions are almost more important than later ones,’’ she said.