KIWISAVER – WHY YOU REALLY SHOULD BE IN IT
Younger people often think KiwiSaver isn’t relevant to them. Why save for something that is 40 years away and you may not even reach.
The answer is that KiwiSaver can benefit people of all ages in many ways. Younger people (or older ones without homes) are finding that it is allowing them to buy houses sooner than expected. Parents can use it to encourage financial literacy in their children. Its gives beneficiaries a lump sum if the member dies and people who find themselves in a financial mire have access to emergency money to help them through.
KiwiSaver is relatively new to New Zelanders. But as time goes on members are beginning to understand the wider benefits of a retirement savings scheme.
Last year, for example, more than 11,000 Kiwis have used their KiwiSaver to buy their first home. With 600,000 KiwiSaver members under the age of 24, many more will follow suit especially now that the Government has announced that it will lift the earnings cap for a couple to $120,000.00 from 1 October 2013.
There are two ways that first home buyers can benefit from KiwiSaver:
One is the first home deposit subsidy, which offers up to $5,000.00 per member ($10,000.00 per couple) of free government subsidy towards their first home if they qualify.
The other way KiwiSaver can help is with first home withdrawal. This allows the member no matter what they earn to withdraw both their own and their employer’s contributions towards a first home. There is no income or house price cap for this. Anyone can do it.
Once such home buyer who benefitted from KiwiSaver was single mum Joanne. Joanne didn’t really notice the money going from her pay packet but had $12,000.00 in her account when it came time to buy and qualified for an additional $5,000.00 first home deposit subsidy. This was all she needed as a deposit to buy the two-bedroomed home on a cross-leased section that she had fallen in love with in Auckland.
It wasn’t her first home. Joanne qualified for a second chance home withdrawal because she was in the same financial position as a first home buyer. The process was nail biting for Joanne who was assisted by her mortgage broker. She had just one week after making her offer to go unconditional on the property. Her mortgage broker made sure that all of the paperwork was signed and filed on day one including the KiwiSaver first home withdrawal application to her Kiwisaver provider and the first home subsidy forms for Housing New Zealand. Without both being approved she couldn’t buy the house.
In the meantime the broker organised a mortgage with Joanne’s bank and arranged for the bank to loan Joanne a temporary deposit until KiwiSaver paid out. Joanne is extremely grateful for the opportunity KiwiSaver gave her to get into her own home. It is the first time in her teenage son’s life that he has had a bedroom to call his own.
People can make these withdrawals for other reasons including for significant financial hardship and serious illness. On the death of a KiwiSaver member their savings are paid out to their estate. That is especially important for people who wouldn’t have saved otherwise. It means that their beneficiaries have some money available.
Tips for Making the Most of Your KiwiSaver
Be In It – the best tip for anyone is to be in KiwiSaver. There are nearly 2 million Kiwis yet to sign up for KiwiSaver and they are missing out on both the Government and employer contributions. That can add up to many thousands of dollars in a few short years.
Make Sure Your Children are in KiwiSaver – Each and every child in this country is entitled to a $1,000.00 free kick start from the Government. Many parents and grandparents are also contributing regular small amounts or leaving legacies to their offspring’s KiwiSaver accounts knowing it must be used for a first home.
Self-Employed Contributions – self-employed people and those taking career breaks or on maternity leave should ensure that they are paying the minimum $20 a week to qualify for the annual member tax credit of $521.43. That $20 a week investment in KiwiSaver returns 2.5 times that in the first year and continues to attract a 50% return in subsequent years. No other investment can beat that.
Beware of Investment Holidays – It is all too easy to say I need $20 or $40 extra in my pocket. That $1,000.00 (over a year) would be worth a lot more if it remained invested for 20, 30 or 40 years.
Choose Your Own Fund – if you have been auto enrolled through your employer you are probably in a default fund which may not be suitable for you. Default funds are conservative and are unlikely to grow over time as much as a balanced, growth or aggressive fund. Even a small increase in the average return on your savings can make a significant difference to the value of those savings when you retire.
Don’t Withdraw Your Money When you Retire or Don’t Close Your Account When you Turn 65 – unless you need your money the day you turn 65 then it’s a good idea to leave it in your KiwiSaver fund. If you work beyond 65 you can still contribute. The member tax credit stops and employers are not required to make contributions although many employers continue to pay voluntarily.
Take Interest – read your member statements and newsletters from your provider and understand how your money is being invested. The more informed you are, the better decisions you will be able to make. After all its in your best interests to do this, it’s your money.