Canny View: Key changes to KiwiSaver start kicking in from April

Geoff Wilson

Important KiwiSaver changes are due to come into force soon, enabling far greater choice and flexibility for KiwiSaver investors.

Granted Royal Assent is the Taxation (Annual Rates for 2018-2019, Modernising Tax Administration, and Remedial matters) Bill.

As its name implies, this is an omnibus bill amending several tax acts, including the KiwiSaver Act 2006.

Of relevance to KiwiSaver investors are the following changes:

From April 1, 2019, KiwiSaver members will have two additional contribution rates to choose from – 6 per cent and 10 per cent of gross salary – in addition to the current 3 per cent, 4 per cent and 8 per cent options. (NB: employers will still be required to make a minimum contribution of 3 per cent of gross salary). Inland Revenue figures show that 24 per cent of members contribute at the 4 per cent rate, but only 9 per cent of members at the 8 per cent rate, indicating there might be a greater take-up if a 6 per cent option was offered.

Illustration: a 35-year-old with $25,000 KiwiSaver funds, working salary $50,000 per annum gross (2 per cent inflation uplift per annum). Raising the contribution rate from 3 to 4 per cent would net approximately $40k extra, raising from 3 per cent to 8 per cent would raise approx $215k extra (as at age 65). (Estimates and returns are not guaranteed and intended only as a guide).

Renaming the Contributions Holiday to Savings Suspension and reducing the maximum period from 5 years to 1 year (renewable on application) – this allows members to temporarily cease their contributions, although this also means no government or employer contributions, as relevant.

From July 1, 2019

People over 65 will be eligible to opt in to KiwiSaver. Employers, at their discretion, can make employer contributions.

Removal of the "lock-in" period that requires new members over 60 to remain in KiwiSaver for at least 5 years before withdrawing their funds.

Overall, these changes are positive steps to help investors, young and old, to utilise KiwiSaver as a low-cost retirement investment vehicle.

Enabling over 65-year olds to access KiwiSaver is long overdue, although they will be unable to access the Government contributions (aka Member Tax Credits) and those in employment will rely on the discretion of their employers to make employer contributions.

If there is one group to miss out, it would be children for whom, without the re-introduction of the $1000 "kickstart" have little incentive to join KiwiSaver. Given first home purchase is becoming ever more challenging, enabling children – "tomorrow's voters" – to start early and build up a potential deposit would be a beneficial move. It is speculated that a "kickstart" incentive might be re-introduced as part of a pre-election Budget.

What the legislative changes don't, or cannot, do is ensure that KiwiSaver members are invested in the funds most appropriate to realise their future life goals. It is important to periodically reassess your KiwiSaver as your life goals and/or personal circumstances change.

Talking, in person, to a KiwiSaver specialist generally helps in this regard – most independent financial advisers will provide a no cost, obligation free, initial discussion – although, with nearly 70 per cent of KiwiSaver accounts held with the banks (often, for convenience) such advice is generally only available at the end of a computer.

*Geoff Wilson is a Registered Financial Adviser and KiwiSaver Adviser at Stewart Group – a Hawke's Bay-based independent financial advisory firm based in Hastings. Stewart Group provides Wealth Management, Risk Insurance and KiwiSaver services.

*The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961.