No reason to take lump sum

I am 55 and have saved over $100,000 into my KiwiSaver, having set my contribution rate at 8 per cent. Recently I heard someone say that the Government could restrict access to KiwiSaver at age 65 so that members can take an annuity but no lump sums. This has got me a bit worried. Should I be looking at reducing my contribution rate to the minimum and doing something else with the rest? I'm concerned that I may be unable to take my funds as a lump sum if I want to at age 65, and I also don't want to pay too much in fees.

KiwiSaver rules are set out in the KiwiSaver Act 2006, and the Government has to follow the appropriate process in making any changes.

The change you describe would be major and I would expect extensive consultation if it were to be considered.

Having said that, we have already seen some changes to KiwiSaver since it was introduced in 2007, and there could certainly be further changes in the future.

At present, members can withdraw all their savings as a lump sum when they qualify for NZ Super, as long as they have been a member for a minimum of five years.

Currently New Zealanders receive NZ Super from age 65, but if that were raised it is possible that the age of eligibility to withdraw from KiwiSaver would rise too.

Why would the Government decide to restrict access to KiwiSaver at retirement? The most compelling reason is that members are not spending the money wisely.

To many people, reaching the age of 65 and getting access to all your hard-earned savings feels like winning Lotto.

According to the Commission for Financial Capability's 2016 survey of KiwiSaver providers around 29 per cent of eligible 65+ retirees withdrew the lot as soon as they had the chance.

Many choose to spend the money on a boat, a new car or an overseas holiday.

Before you reach the age of eligibility, learn to say no to others.

Turning 65 is a big milestone for most New Zealanders, and you could find yourself the object of extra attention.

How many people are tapped on the shoulder for help by friends and family members, who know that their KiwiSaver is about to be unlocked?

When you reach retirement you should work out how much you need from your KiwiSaver to top up your NZ Super.

You can set up a regular payment of say $100 or $200 per week, and this will allow your KiwiSaver to continue growing over your retirement years.

Use the calculators on the Sorted website to see how long your savings will last.

Annuities are not popular in New Zealand, and I would be surprised if the Government decided to restrict KiwiSaver access at retirement to regular income payments only.

But they could consider limiting lump sum withdrawals to a percentage of the total sum over a period of time.

As a sweetener, they could improve the tax benefits for KiwiSaver. This would ensure the continued popularity of KiwiSaver.

By all means reduce your contributions from 8 per cent to 3 per cent and direct the difference to a more accessible fund.

If you want help in choosing a fund talk to an authorised financial adviser.

Or the NZX website has information on investing, as does the Financial Markets Authority.

- 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 shelley.hanna@peak.net.nz