Getting the best out of KiwiSaver

By Hamish McPhail, LL.B, GDipBus (Personal Financial Planning), CFPCM, Financial Adviser – Investments, Director of MFAS

The shemozzle the Government has recently created regarding the quickly rescinded plan to tax KiwiSaver fees, is a reminder that, as wonderful as KiwiSaver is, there are pitfalls to be aware of. In essence, apart from first home deposit, hardship, permanent emigration, and death, we are locked into our KiwiSaver schemes until Retirement Age and this age is set by Government. Currently 65, it is likely, as has occurred in many Western countries, that the Retirement age will need to be pushed out to age 67 (or beyond) to ensure the very long-term sustainability of the NZ Super Scheme – which is the link to eligibility age within KiwiSaver.   

This is a matter outside our control and indeed over the years we may see government intervention of the like that has made headlines the last few days, targeted in other areas detrimental to KiwiSaver holders.

At MFAS. we strongly recommend that all eligible persons have a KiwiSaver account. If you are self-employed, you should be investing the minimum annual amount of $1,042 to get the government contribution.  If you are employed, you should be matching the maximum level your employer has offered to contribute.  You can contribute 3, 4, 6, 8 or 10% to your KiwiSaver. But, once you have invested enough to receive the annual rebate or secure your maximum employer contribution, there is a case that this should be the maximum that is applied to KiwiSaver.

For those that want to save more (and we strongly recommend this), we believe it is better to save into an investment portfolio, similar to KiwiSaver but with full liquidity and flexibility which is not available within KiwiSaver and is insulated from future Government intervention. So, looking at an example of employment, as a (say) 35-year-old you are earning $100,000 and your employer contributes 3% but you would feel comfortable saving 10% of income. In this situation we would advocate:

Match your employer KiwiSaver contributions at 3% ($3,000 p.a.).

Invest the balance of 7% ($7,000 p.a.) into a separate saving/investment fund.

It is a fair observation that KiwiSaver funds often attract less fees than separate investment funds and this must be a consideration when you establish alternative savings options. However, we are aware that there are fund managers that run investment portfolios more or less clones of their KiwiSaver offerings, that are very easy to access and priced on the same basis as KiwiSaver. Harking back to my 35-year-old above, starting with a zero balance, in a period of 20 years the KiwiSaver is projected to have a value of $270,000 and the separate savings portfolio $350,000. These latter funds could be used for purposes such as repayment of mortgage, purchase of rental property or continued investment. The point is that you will have much more flexibility to consider various options and opportunities and at the same time, your investment does not run the risk of government intervening and upsetting your objectives.

Given the recent reminder of the possibility of Government meddling, this combination of KiwiSaver and flexible saving has compelling logic.