COMMENT: KiwiSaver has been a roaring success, gauging the number of people in it – 2.8 million of us are members.
But if you look at the number who aren't getting much out of the investment scheme, the results should be far better.
"Garbage in, garbage out," goes the saying, but with KiwiSaver it's more like "Nothing in, nothing out". We're simply not going to get results if we're not contributing.
Eleven years after KiwiSaver was introduced, we now have the benefit of hindsight and the data to show how people are actually using it, or not.
Happily there are promising changes in the pipeline set to come into effect next year that will improve our results.
A bill tabled in parliament is now working its way through to being made law later this year.
When holidays suck
When is a holiday not a holiday? When it's a contributions holiday. That's when you decide to stop contributing to your KiwiSaver for a while: the default time off is currently set at five long years unless you opt back in.
There's nothing wrong with having that option for dire circumstances, but it should only be a temporary break. That way you don't miss out on contributions from your employer, the government and investment returns. Until your "holiday" ends, you're leaving money on the table.
Five years! That's far too long. And "holiday" makes it sound way too positive.
So next April, assuming the bill is passed, "contributions holidays" will officially be renamed "savings suspensions", reflecting what they really are. And a suspension will only last one year before you start automatically contributing again. (Don't worry, you can suspend more than once, but at least there's a prompt every year to prevent your break lasting longer than absolutely necessary.)
Pumping more in to get more out
You know how the minimum rate to contribute is set at 3 per cent? That suggests that all you need to put in is 3 per cent to be set for your future. This may not be the case, depending on the lifestyle you want. (Have a quick look at your own numbers here.)
Then there are those two other rates to choose from, 4 per cent and 8 per cent. For a while I gave 8 per cent a try, but then had to ratchet back when things got tight.
But there wasn't an option between 8 per cent and 4 per cent, so I took a bigger drop than perhaps I needed to. On the other hand, many folks find that the jump from 4 per cent to 8 per cent is a bridge too far; something in the middle would be good.
Which brings us to the next welcome change to KiwiSaver: next April contribution rates will be expanded to 3 per cent, 4 per cent, 6 per cent, 8 per cent and 10 per cent. This will give us all more flexibility, and more control over the results we'll get over the long term.
How much of a difference could these various rates make to your final results? To give an idea, if you started earning $50k and were in KiwiSaver 45 years, your results might look something like this:
3 per cent = $310,000
4 per cent = $360,000
6 per cent = $463,000
8 per cent = $565,000
10 per cent = $668,000
And those numbers are after fees, taxes and inflation have done their thing, so those are real dollars.
KiwiSaver beyond 65
Right now, people above the age of 65 cannot join KiwiSaver, which sidelines them from the action. Sure they can stay in the scheme if they joined before turning 65, but a whole group of people above that age are being left out of what can be a lower-cost investment option.
There's no good reason for this, especially when the rule excludes those who keep working past 65 and whose employer would voluntarily keep contributing as well (our surveys show that around 25 per cent of employers do). And for Kiwis overseas who return home for their golden years, KiwiSaver could be a welcome place to park their nest egg and grow it further.
As of next July, over-65s will get to join KiwiSaver. And those who join after the age of 60 won't have to wait a full five years before accessing their savings, as they do now,
So these are promising developments in the world of KiwiSaver that should soon become law. Still, it will always be "nothing in, nothing out" – to get the most out of KiwiSaver we need to keep contributing.
- Get Sorted is written by Sorted's resident blogger, Tom Hartmann (@TomHartmannNZ). Check out the guides and tools from Sorted – brought to you by the Commission for Financial Capability – at sorted.org.nz.