It is becoming more and more important for you to review your KiwiSaver and see how it is tracking to enable you to have the best retirement.
People are seeing their balances grow each year they are in KiwiSaver. Many people have a substantial amount to now consider KiwiSaver as an investment that will make a difference at retirement.
Please click here for reasons to be looking at your KiwiSaver.
Some people may be forced to live off their KiwiSaver for two years while they wait to get New Zealand Superannuation, an academic has warned.
The Government announced plans this week to lift the pension age to 67 by 2040. But it will leave the access age for KiwiSaver at 65.
Susan St John, director at Auckland University’s Retirement Policy and Research Centre, said people turning 65 may have no choice but to dig into their KiwiSaver if they can’t work and the benefit is asset-tested.
“If there is nothing but a welfare benefit that is means tested and KiwiSaver funds are part of that means test then people who can’t sustain adequate levels of paid work will have no alternative but to erode their savings pots.”
“So not only do the people struggling already to work at 65 not get the pension they need at 65 but when they do reach the magic age of 67 they may have little else to call on for additional income.”
St John said its research showed retirees needed around $10,000 a year on top of NZ Super to have a modest retirement.
“This requires a sizeable lump sum especially when the Government doesn’t help retirees with mechanisms to annuitise fairly.”
St John said well-off people would be fine with the NZ Super age at 67 but it could be crippling for others.
“These ‘others’ may not enjoy the same average longevity prospects directly as a result of this policy.”
But David Boyle, group manager investor education, at the Commission for Financial Capability which last year recommended the Government keep KiwiSaver access at 65 while increasing the NZ Super age to 67, admitted it could see people using up more of their KiwiSaver at the beginning of their retirement.
But he said the 20 year transition period meant people had time to plan for the extra amount and save for what they might need.
“They can think about ‘how much do I need to save to make up that gap’.”
He said that amount could be equivalent to two years of NZ Super – around $18k per year for individuals and $23k per couple.
Boyle said it had wanted the KiwiSaver age de-coupled from the pension age so people could have certainty over when they would get access to their own savings.
And he said if the two were separated there should be a public debate over whether access to KiwiSaver stayed at 65.
“I think there still needs to be a discussion around what is the right age.”
The commission has not proposed a specific age for KiwiSaver access and Boyle said there may not be a one-sized fits all approach.
The proposed pension age change would not come up for a law change until after the election.
More than 2.7 million people are signed up to KiwiSaver with over $34 billion invested.
A spokeswoman for Finance Minister Steven Joyce said that the Government recognised that people expected their KiwiSaver to be available from age 65.
“And we respect that – it will give them more flexibility to draw down their KiwiSaver funds when they choose,” she said.
“The Retirement Commissioner recommended decoupling in her Review of Retirement Income policies last December.
“People will ultimately make their own decisions about the use of their KiwiSaver funds but in regards to people unable to work past 65, there are existing mechanisms for the Government to provide financial support through Work and Income.
“On top of that the Government will legislate for a review in 2030 to consider whether any temporary support is needed for people not able to work beyond the age of 65.”
Prime Minister Bill English announced that the age of eligibility will rise from 65 to 67, in gradual steps, from 2037.
The changes will be phased in from July 2037 and will not affect anyone born before July 1972.
The age of eligibility will increase six months each year from July 1, 2037, until it reaches 67 on July 1, 2040.
What does that mean for you?
Will the Super changes affect me?
If you are born on or after July 1, 1972, yes. You will have to wait until you are 67 to get your pension. But you will still be able to access your Kiwisaver at 65.
What if I’m born on June 30, 1972, or earlier?
Nothing will change. You will still get NZ Super when you turn 65.
What if I’m an immigrant?
If you’re a resident or citizen in New Zealand now, nothing will change. You will still get Super if you live in NZ for 10 years (five of those years after 50).
If you arrive after the law is changed (possibly next year), you will have to live in NZ for 20 years to get Super, five of them over the age of 50.
Will I still get my SuperGold card at 65?
Not once the retirement age is lifted. The age for a SuperGold will go up to 67 too.
Will the payments change?
No. they will remain at 66 per cent of the average wage (currently $335.50/week per person for a married couple or $443.50/week for a single person living alone)
What if I’m rich? Will Super be means-tested?
No. There are no plans for asset testing or income testing.
What are the expected cost of Super in the future?
With 1.1 million people expected to be retired in 2030 the forecast cost would rise to $20 billion a year equivalent to 6.2 per cent of the country’s output (GDP) against $11b a year and 4.8 per cent now.
The changes would lower the cost by 0.6 per cent of GDP – from 7.2 to 6.6 per cent of GDP – in 2045.
How does it compare with other countries?
Australia is at 65 now, rising to 67 by 2023.
Britain is 65 now rising to 67 in 2028 and to 68 at a later date.
The United States is 66 now rising to 67 in 2027.
It’s fast approaching that time of year again when you need to ensure that you are on the correct Prescribed Investor Rates (PIR’s) for the current tax year (ending 31 March 2017).
If you have invested in KiwiSaver scheme, then you will have a prescribed investor rate (PIR).
What is a prescribed investor rate (PIR)?
A PIR is:
We recommend you review and confirm that you are on the correct PIR rates.
If you are on the wrong code, then:
See below a chart that helps ascertain what rate you should be on.
Please feel free to contact us if you need further advice – info@insurenz.co.nz or call 09 551 3500.
The Government is considering changing regulations around KiwiSaver holidays after calls from retirement chiefs to tighten the rules.
The Commission for Financial Capability wants five-year payment breaks scrapped with payment breaks rolled over one year at a time.
It also wants the word “holiday” replaced with “suspension” because it fears the word holiday sounds too upbeat and may be encouraging savers to think of it as a positive.
James Hartley of the Ministry of Business, Innovation and Employment said it was considering the requests for change to the voluntary, work-based savings scheme.
“The Government is considering the Commission’s recommendations, including those relating to the KiwiSaver contributions holiday, and will respond to those recommendations in due-course,” Hartley said.
The Commission’s general manager investor education, David Boyle, said the changes were essential to take KiwiSaver from “infancy to adolescence” in good shape.
He was admandent the work “holiday” needed to go.
“That word gives the wrong impression that it’s something good,” he said.
“New Zealanders need to be made aware how financially damaging taking a five year break can be – it shouldn’t be seen as a holiday.”
Boyle pointed out suspending payments meant losing not only the employee and employer’s contribution but also the $521 annual tax credit.
He said if the “suspensions” were reduced to one year people could reassess their financial situation and if necessary take another year.
“A lot of people are on a “holiday” when they have recovered financially.”
“Some actually forget they have stopped paying into their KiwiSaver.”
Boyle said taking a holiday on an income of $35,000 meant a loss of more than $2600 a year including the tax credit.
“Losing that amount has a huge impact on someone when they have stopped working.”
More than 765,000 people were taking a break from payments in the last financial year, to June 2016.
And that number was increasing each year, according to Financial Markets Authority data.
Savers can take a break of up to five years. But a five-year break at age 25 would cost around $40,000 by the time savers reach 65.
ANZ, New Zealand’s largest KiwiSaver provider, says that more than 80 per cent of its members who ask for a contributions holiday take it for the maximum five years. Many then roll over onto another holiday when the first finishes.