For those of us that are employed the range of personal contributions we can choose are 3%, 4%, 6%, 8%, 10%.
We believe that personal contribution levels are a matter that we all should consider and update from time to time. Many western world countries require that contributions to personal super should be around 10% of salary and there is much merit in considering regular KiwiSaver saving at the high end.
At the same time however, if you have aspirations of retiring before age 65, then you will need to ensure you have funds over and above KiwiSaver, to provide your retirement income in the years between retirement and age of eligibility. If KiwiSaver eligibility is pushed to age 67 which has previously been signalled but not yet implemented, (which many will agree seems logical), other forms of savings become a critical plank for retirement planning.
If you wish to change your contribution rate it is normally required to complete a KS2 form and provide this to your payroll clerk. This form is available on the IRD website.
The minimum employer contribution rate has not changed from 3%, and this is subject to tax at your personal tax rate before being allocated to your KiwiSaver account.
While you are DHB employed, you should match the DHB contribution of 6%.
KiwiSaver and the Self Employed
For those self-employed, there are no recent changes to KiwiSaver. We continue to recommend everyone over the age of 18 years should invest a minimum of $1,042 p.a ($87 per month) to receive the Government rebate of $521 p.a (a 50 % return on investment!). Note if you contribute less than $1,042 then the rebate will be pro-rata to your contributions.
It is also important to note that the KiwiSaver year runs from 1 July to 30 June each year, and therefore the tax credit is assessed on contributions received in the 12 month period ending 30 June. It is easy to “top up” your (or your children’s) KiwiSaver contributions prior to 30 June, via online banking and selecting the option to pay tax and then KSS code. You only need your (or their) IRD number to ensure the funds go towards the balance.
Note children under the age of 18 are not eligible for the tax rebate.
KiwiSaver after age 65
For any KiwiSaver investors over 65, the requirements to be invested for a minimum of 5 years before being able to withdraw funds has been removed, making KiwiSaver deposits essentially “on call”. If you are still working and want to continue investing, you may find KiwiSaver a cost effective type of fund to invest in, as discussed further below.
There is no Government tax rebate available after age 65.
When KiwiSaver was first introduced the common thought was that upon reaching the age of 65, KiwiSaver would be cashed up, invested alternatively or funds used for lifestyle spending. However, with the growth of KiwiSaver and the size of accumulated funds, this view has changed.
Many will now choose to continue to hold KiwiSaver alongside other investments through retirement. The advantage of this strategy is the generally lower fees charged by KiwiSaver schemes. This is because KiwiSaver investment managers have a long duration to work with and KiwiSaver is much less liquid when compared to traditional investment portfolios. KiwiSaver also provides tax advantages of being a PIE (maximum tax rate 28% as opposed to maximum personal rate of 33%).
KiwiSaver rules allow that you can take lump sums from your account as and when you need them and these are generally processed fairly quickly in around 5-10 working days. Alternately you are able to set up a regular direct debit for fortnightly/monthly/quarterly payments.
If you do continue to hold KiwiSaver post age 65 then you need to be even more mindful of the fact that these funds are not personalised to meet your requirements. Therefore it is essential that you regularly check to ensure that your risk allocation is appropriate for your decreasing investment timeframe. You need to consider whether you are in the correct scheme for your age and stage, whether it matches your capacity for risk as (just with any investment) and ideally your KiwiSaver asset allocation should continue to adjust as you continue to age. As a rule, our capacity for growth assets, which have more up and down volatility, diminishes over time. The KiwiSaver option you choose at age 40 will likely have no merit at age 70.
KiwiSaver post 65 can be a very effective tool for retirement funding. This subject to the caveat that it is (even more) critical to know what you are investing in and whether this fits with your current timeframes and psyche.
Hamish McPhail, LL.B, AFA, CFPCM