Why so many opt out of KiwiSaver
About a quarter of a million people have opted out of KiwiSaver, potentially missing out on hundreds of thousands of dollars in savings over their lifetime.
By last year, 235,814 employed people had opted out of the superannuation savings scheme since its inception.
Anyone who starts a new job is automatically enrolled in the scheme but they have the option to remove themselves within their first eight weeks.
Statistics will include people who have opted out more than once, from more than one job.
With employer contributions of 3 per cent or more on offer, and an extra $521 a year from the Government for those who contribute at least $1042, KiwiSaver is often called a ‘‘nobrainer’’.
So what might make it worth saying no?
A better employer scheme
Private workplace-based savings schemes are a lot less common than they used to be, but they do still exist.
If you work for a business that offers such a scheme, with more generous terms than KiwiSaver – more flexibility or higher contributions, it would make sense to opt out of KiwiSaver and focus on that instead.
Commission for Financial Capability group manager of investor education David Boyle said it was important to check the terms of these schemes. It is common to have to stay with the employer for a set period of time to retain the full entitlement.
Boyle said it was becoming more common for employers to include KiwiSaver contributions within a headline salary figure.
If someone was in the scheme, their 3 per cent would come out of the total pay they were being offered.
He said taking the money rather than saving it was a reasonable strategy for people with a big debt they wanted to pay down quickly.
‘‘Getting the mortgage down to where a lot of interest is taken off the table, to me that would make sense.
‘‘If you’ve got a 20-year mortgage, you want to get it down as quickly as you can and an extra 3 per cent would make a difference.’’
He said it would also make sense for people to opt out if they had a business they hoped to build up to provide them with an asset.
High-interest debt
If you have high-interest consumer loans, paying those off should be a priority over everything else.
Boyle said it would make sense to opt out of KiwiSaver in that situation.
‘‘If you’ve got payday lending then focusing on getting rid of that would make perfect sense because the interest rate is phenomenal.’’
Affordability
To join KiwiSaver, members must contribute 3 per cent of their pay, matching their employer’s contribution, for at least a year. After the first year, they can opt to go on a contributions holiday and just make voluntary payments to the scheme.
Boyle said, for some people, the hurdle of that first year was too high.
‘‘No matter how you slice the cake, there’s nothing left to put 3 per cent in.’’
Some people could not afford to contribute anything, he said, but others decided they could not before they realised what was actually required.
These reasons don’t cut it:
Worries about government and KiwiSaver:
KiwiSaver schemes are administered by privately-owned fund managers. The government can’t take your money from KiwiSaver any more than it could from any other managed fund. Fees: If you’re worried about the fees charged by scheme providers, you can opt for a low-fee option. Waiting until you’re ready:
The earlier you start, the better. The power of compounding means money you put in when you are younger will generate the best returns over your lifetime.
Your employer tells you not to join:
Boyle said people had told him they had been encouraged to opt out. KiwiSaver is a cost to employers but they cannot legally tell you not to be part of the scheme.