My partner and I are in our mid 20s with steady jobs. We are planning to buy our first home using our KiwiSaver accounts this time next year. In 2015 we increased our contribution level from 3 per cent to 8 per cent and we each have over $20,000 in our accounts now. We have found it to be a very easy way to save and would like to increase our contribution rate to 10 per cent. Is this possible?
Given that saving is generally regarded as a good thing, you may be surprised to hear that increasing your contribution level from your wages to 10 per cent is not possible, at least at present.
When the KiwiSaver Scheme started in 2007, the Labour Government set employee contributions at 4 per cent and planned for employer contributions to reach 4 per cent by April 1, 2011. When National won the next election they adjusted the settings, reducing the employee minimum from 4 per cent to 2 per cent and reducing the rate of employer contributions as well. Back then employees could choose a contribution rate of 2 per cent, 4 per cent or 8 per cent.
On April 1, 2013 the minimum contribution increased from 2 per cent to 3 per cent. It would have been a good time to increase the other options, but they have continued unchanged.
A while back I investigated whether there were any plans to adjust the levels. I received this response from a Treasury spokesperson: "No, the Government has no plans to adjust the higher contribution rates along with the minimum (and default) rate ... The point of having only a limited number of options for contribution rates direct from salary is to keep administrative costs down for employers; the Government would certainly not claim that any of 3 per cent, 4 per cent or 8 per cent is the right, or the best, rate for any individual member. That, of course, depends on their individual circumstances, ambitions, short and long term financial requirements, etc."
Anyone who wishes to contribute more than 8 per cent to their KiwiSaver has two choices.
They can set up a direct debit from their bank account into their KiwiSaver fund, or they can make occasional top-ups as and when they have spare funds.
We all know that it is easier to save small amounts regularly, than wait for money to accumulate magically somehow in our bank account.
If you are currently earning say $50,000 and would like to increase your contributions from 8 per cent to 10 per cent, this is an extra $1000 per year. The easiest way to achieve these extra savings is to set up a direct debit into your KiwiSaver account for say $20 per week or $40 per fortnight.
The downside of doing it this way rather than automatically through your workplace is that you have to make the effort to set it up.
You may also incur bank fees. The upside is you are in control and can stop or change it quite easily.
- Shelley Hanna is an authorised financial adviser FSP12241. Her free disclosure statement is available on request by calling 06 870 3838 or go to www.peak.net.nz. The information in this article is general and is not personalised. Send your KiwiSaver questions to firstname.lastname@example.org