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Greater flexibility for KiwiSaver members

More flexibility and more clarity – that’s the outcome of recent changes to KiwiSaver being introduced by the Government. In this article we outline the changes – and more importantly, what the changes mean for existing or prospective KiwiSaver members.

What are the changes?

The changes are being introduced in three stages:

From 1 April 2019:

  • Two new contribution rates (6% and 10%) have been introduced - which means members can now choose to contribute 3%, 4%, 6%, 8% or 10% of their salary. The minimum employer contribution remains unchanged at 3%.
  • Contributions holidays have been renamed as savings suspensions, to better reflect what actually happens. Importantly, the maximum term has been reduced from five years to one year (members can reapply to the Inland Revenue for further one-year terms). Those currently on a savings suspension will continue to have a term of up to five years, but can only re-apply for one-year terms.
  •  Member tax credits will be renamed Government contributions, which also better reflects what they actually are. 

From 1 July 2019:

  • People 65 and over will be able to join KiwiSaver and won't have any membership lock-in period (although they won't receive Government contributions, and employer contributions will be at the discretion of their employer).
  • Members aged 60-64 who join a KiwiSaver scheme for the first time also won't have any membership lock-in period (although once they turn 65 they also won't receive Government contributions, and employer contributions will be at the discretion of their employer.)

From 1 April 2020:

  • Members who are 60 or over and joined a KiwiSaver scheme for the first time before 1 July 2019 will have the option to opt out of the five-year membership lock-in period. If a member opts out, they will not receive Government contributions and their employer can stop their contributions.

More Flexibility

Our surveys of ANZ’s KiwiSaver members have shown they want more flexibility. The introduction of two new contribution rates offers more choice for members looking to save more for their retirement. It’s also timely, given that our research shows that only 41% of New Zealanders feel confident that they are saving enough to meet their retirement needs.

For some members currently contributing 4% and looking to save more, the gap to 8% may have been a bridge too far. The introduction of a new 6% rate provides a more achievable option.

For those with more ability to save, the new 10% contribution rate is an opportunity to ‘turbocharge’ their KiwiSaver account and plan for an even better retirement.

Even a small increase to contribution rates can make a big difference to members’ retirement savings. If a 30 year old male who earns $50,000 per year (before tax) and is invested in our Lifetimes option was to increase his contribution rate from 4% to 6%, he could have an extra $97,000 ($49,000 when adjusted for inflation) at age 65disclaimer. That’s a significant difference.

Of course, any decision on increasing your contribution rate needs to take into account your current situation and commitments. For example, increasing your contribution rate when your income increases can be a good way of minimising the impact.

If members would like to take advantage of the new options and change their contribution rate, they can fill out this Inland Revenue Form and then hand it to their employer.

There are more options for people over 65 too. The ability for them to join KiwiSaver from 1 July also offers an additional investment option not previously available to them.

More Clarity

The renaming of member tax credits to Government contributions removes a source of potential confusion over how these contributions actually work, so it’s a welcome change. It’s also a timely reminder for KiwiSaver members to make sure they’re contributing a minimum of $1,043 per year (1 July – 30 June) in order to get the maximum Government contribution of $521.

The renaming of contributions holidays to savings suspensions is also a welcome change. It reinforces the fact that taking a break reduces not only the amount you save, but also the benefit of compound returns. Limiting the maximum term to one year will help reduce the impact on members’ overall savings.

More Information

If you have any questions or want more information about these changes, call us on 0800 736 034 or contact your Adviser.