From July, the first eligible investors can get their money out, writes Tamsyn Parker
Not many schemes survive tinkering by successive governments and a global financial meltdown.
But KiwiSaver has made it through and when it turns 5 in July, the first savers will begin to benefit.
Around 75,000 people - those who are aged over 65 and have been in the retirement scheme for five years - will be eligible to take their money out.
But it will be up to the individual to decide whether to leave the money in, or take it out to spend on everyday living or blow on big-ticket items.
Andrew Gawith, a director of Gareth Morgan Investments, reckons people will be rational about how they use the money.
"We don't expect hordes of 65-year-olds to cash up and party until it's all gone.
"Some might spend up on a holiday, but I suspect the vast majority will simply say, 'Thanks very much', and retain it as part of their store of wealth and plan accordingly."
David Boyle, general manager of funds management for ANZ Wealth and OnePath, says that when KiwiSaver was launched, the biggest uptake for active investors (those who chose to join the scheme rather than being auto-enrolled) was from people near retirement.
"Consequently, large providers like us will have a greater bubble in that age group."
OnePath alone has 3000 members who will be able to pull their money out in July. With an average balance of $15,000, that is $45 million that could go back to investors.
But Boyle says investors don't need to rush to make a call as soon as they turn 65 or notch up five years in the scheme. "They don't have to make a decision on the day; they can leave it in KiwiSaver."
However, the benefits of staying in will be reduced. Employers do not have to make contributions to an employee's KiwiSaver scheme if the saver is over 65 (and has been in the scheme for more than five years). The Government stops its contributions too.
Jeff Matthews of Spicers Wealth Management says it will depend on individual circumstances.
"A lot of people just signed up because they were getting money from the Government and their employer. For most it will be a bit of pin money - to maybe buy an iPad or get a new car. Their balance may only be around $10,000."
Matthews says for those who are carrying a lot of credit card or consumer debt, it could be a good chance to pay that off.
But investors don't have to take the money out and Matthews says it could be best for many to just leave it in KiwiSaver.
"If the person is 65 or joined at 64 and is now 69 with a life expectancy of 83 or 85, they probably still need to have some money in shares or property investments."
Many people decide to cash up all their investments at 65 and put the money in the bank, but Matthews says the low interest rates for bank savings accounts mean the investments don't keep up with the rising costs of living.
KiwiSaver is a low-cost way to invest in higher-growth investments such as shares and property and Matthews says if you can keep contributing after 65 that's even better.
Some people who invested in aggressive-type funds with a high level of exposure to shares or property may also need to wait for their investment to recover from the effects of the global financial crisis and sharemarket meltdowns.
"If they have been in aggressive funds they could have less than what they have put in, but this has been an abnormal five-year period."
Sam Stubbs, head of Tower's wealth management arm, says KiwiSaver is a flexible investment for over-65s.
"People can keep [their money] in there, can take it out in one lump sum or a regular withdrawal."
However, if all the money is withdrawn, the account will be shut and the person will not be able to rejoin KiwiSaver.
Stubbs says the withdrawal of money will have no material effect on KiwiSaver funds as a whole as there is still money coming in.
"I think the majority of people, once they realise they can take it out at any time, if they are comfortable they will leave it in."
The withdrawal of money does complicate things for the industry but Stubbs does not expect any problems as bad as when the scheme was first set up and some investors experienced long delays in transferring money from Inland Revenue to providers.
Those who want to take their money out will be required to fill in withdrawal forms and provide identification that matches the details held on their file.
Ins and outs
people expected to be in KiwiSaver by July 2012
will turn 65 between July 1, 2012 and June 30, 2013 and be eligible to get their money out
will be eligible to withdraw their money in July
Source: Pre-Election Economic & Fiscal Update 2011
* You become eligible to withdraw all your savings as a lump sum when you qualify for NZ Super (currently at the age of 65).
* If you joined KiwiSaver between the age of 60 and 65, you'll be able to withdraw your savings after you've been a KiwiSaver member for 5 years.
* Any withdrawals from your KiwiSaver account are tax-free.
* When you are eligible to access your savings, apply to your KiwiSaver provider.
* The amount you get will depend how much you have put in and what the investment returns have been over the past five years.
Source: Inland Revenue Department