New Zealanders miss out on $1 billion for their nest eggs
As much as $1.2 billion in future returns fails to make it into retirement savings each year as 1.2 million KiwiSaver members miss out on money available from the Government – and all the future growth that comes from it being invested.
People who do not contribute sufficiently to their KiwiSaver funds miss out on the member tax credit.
The Government contributes 50 cents for every dollar you put into your KiwiSaver account, up to a maximum contribution of $521 each year.
This is meant to be an incentive to save, but without contributions going in, it gets left on the table.
In March last year, 1,230,408 New Zealanders were recorded as KiwiSaver non-contributors by the Financial Markets Authority (FMA), meaning they had not contributed anything to their KiwiSaver account in the past two months.
Acknowledging that not everyone is in a position to put in $1043 over the year, and under-18s are not yet eligible, this trend has been consistent over the past five years, with more than a million non-contributors recorded in the FMA’s KiwiSaver Annual Report since 2017. Many people miss out.
Now if you assume for a moment that the $521 is invested in a balanced fund for 20 years,
1.2 million non-contributors would end up missing out on $1.2 billion. That’s 3.5% compounded annually (taking fees and taxes into account of course).
This amount could have a very real impact on our financial wellbeing as future retirees, especially when considering the cumulative effect over
30 or 40 years.
It helps to also consider the personal financial impact of missing out. If you were 18 and getting that $521 boost each year, for example, you could have as much as $36,000 more than someone who hasn’t got it once you reach 65. You can plug your numbers into Sorted’s KiwiSaver calculator.
Here’s how to make sure you don’t miss out.
See if you’re already getting your government contribution this year
You’re on track to get your full boost from the Government if you’re an employee earning at least $34,762 a year (before tax) and have been contributing at least the minimum 3% into KiwiSaver.
No need to do anything – just watch $521 drop into your account in late July or August. Done!
If this is not you, keep reading. If you are not an employee or you earn less, you’ll need to check your contributions. To get that full boost from the Government, you need to have paid in at least $1043 this year, which works out to a bit over $20 a week.
How much have you put in? The easiest way to find out is to ask your KiwiSaver provider. If you’re not sure who your provider is, call 0800 KIWISAVER to find out.
If you haven’t yet contributed enough, there’s still time to top up your account by mid-June and get the full $521.
How much do you need to put in to get across the line? Your provider will know.
During the weeks ahead, before June runs out, make arrangements with your KiwiSaver provider to top up your account. You may want to set up an automatic payment each time you’re paid, or pop in a lump sum when you’re ready. Aim to have at least $1043 in by mid-June.
Times are tough right now, so if you can’t get the full $1043 into your KiwiSaver by mid-June, don’t beat yourself up about it. It’s still worth paying in as much as you can – the Government will match each dollar with 50 cents.
So even putting in $300 nets you $150, for example.
Plan for the future
If you can’t afford anything this year, plan to start contributing next year so you can be eligible for the Government money when June 2024 rolls around.
If you typically contribute less than $1043 a year – and think of all the self-employed, stay-at-home parents, part-time and casual workers out there – here’s how to set yourself up to get the government contribution next year.
The KiwiSaver year runs from July to June. For the next year, set yourself up to contribute at least $20 a week, starting this July.
Again, automatic payments make it easy to set and forget. When next year rolls around, that Government money will flow in without you needing to check anything.
This is also a good reminder to check your KiwiSaver settings and make sure your savings are working hard for you.
Are you in the right fund for your situation?
Depending on how long you are investing for and your attitude towards risk, one type (defensive, conservative, balanced, growth, or aggressive) will probably work best for you.
Could you afford to lift your contributions by 1%? For someone on a $70,000 salary, an extra per cent might cost you around $13.50 a week. But if you’re still early in your saving journey, say 25, that 1% could leave you around $50,000 better off when you reach 65.
For many of us – especially when you pair it with New Zealand Super – that’s more than an entire year’s income in retirement. Or coffee five days a week for 30 years. Or a house renovation...