KiwiSaver advice

[Hoon]

This post is aimed at other Kiwisaver interested people who have done the research and signed up or are thinking about it – I’m not really interested in any advice from the uninformed grudge-bearing doom-sayers out there. The Govt is throwing $3.2 billion of taxpayer money into KiwiSaver, money for the taking and I’m grabbing my piece of it!

OK, My mum turned 60 in the weekend and this really got me thinking as I’m 36 and have no retirement plan. When I got home I did some research surfing up on KiwiSaver, then next morning I went to Whitcoulls and bought the $10 Mary Holm KiwiSaver advice book (http://www.maryholm.com/kiwisaver.php). My plan is to pay the minimum amount necessary to gain maximum benefits. Any retirement savings above that I intend investing elsewhere so I’ll have access to the money.

So say I’m on $60K, if I pay $20 p/w (or $1042 by Apr 08), I also get the max $1042 p/a from the Govt tax credit and 1% ($600) from my employer which ramps up to 4% in 4 years time.

Doing the Math:


Year Me Govt Employer Total Contributions for year
2008 $1042 $1042 $600 $3684 (incl $1000 Govt kick-start)
2009 $1042 $1042 $1200 $3284
2010 $1042 $1042 $1800 $3884
2011 $1042 $1042 $2400 $4284
So for my $1042 I’m getting an extra $2-3K a year. Over 4 years, my $4168 becomes $15136 (not including interest). Does this sound right and similar to what others have worked out? Can I get away with only paying $1042 a year through a combination of 4% plan, contribution holidays and lump sum payments, or do I have to meet the Employers contributions?

Also my Mum who just turned 60. If she starts before Apr 08 at $20pw, in 5 years time she will get $11420 for her $5210 not including any employer contributions or returns!

[degrom]

You sure you can just pay $20 a week... I thought it was 4% of your income... on 60k its about $150???

[RC1]

i think $20 is the min amount?? if your on $60K surely you could save a bit more than $1040p/a cant you ? and put it in a high interest account thats what i would be doing, im not going near kiwisaver not worth it imho

[Oakie]

Yeah, you need to pay 4% or 8% so $60000 =$46.14 per week. I'm not too sure where the $20 comes in but that may be additional voluntary deposits you make.

It's not about meeting the employers contributions. You have to pay a set rate, so do they. Eventually they will pay 4%.

The only thing I would suggest is that you wait a shgort time before jumping in. The bits about the employers contribution and the government tax credit to employers aren't actually law yet so it is possible (although unlikely) that these may change. We'll know by the end of October.

If you are 36 and on $60000, if you joined a KiwiSaver provider under a 'balanced scheme you would expect between $214000 and $219000 payout.

Have a look here http://www.consumersaver.org.nz/ and go to Step 3, Compare Schemes. It is a great tool that lets you define not only salary, age and percent, but also the type of investment you want. If you want my opinion, the returns it lists by company are all pretty close. The big difference is in the security rating. That's the figurte I'll be using to pick my provider.

[Hoon]

i think $20 is the min amount?? if your on $60K surely you could save a bit more than $1040p/a cant you ? and put it in a high interest account thats what i would be doing, im not going near kiwisaver not worth it imho

Yep I could/will save more but under kiwisaver once you go over $1040p/a you don't get anymore freebies so you might as well invest that extra money elsewhere like you say. This is really an exercise on what is the most one can get for the least amount.


You sure you can just pay $20 a week... I thought it was 4% of your income... on 60k its about $150???

Yes it is either 4% or 8% but I *believe* you can take a "contributions holiday" and stop paying altogether. So you could pay 4% for say 3 months then take a break, or you could just stay on a "contributions holiday" permanently and pay a lump sum come March 31st to meet the $1042 p/a. This is what I'm unsure about and need confirmation. Either way I'm not too fussed as the free money gained is still the same.

[Oakie]

i and put it in a high interest account thats what i would be doing, im not going near kiwisaver not worth it imho

Even if your high interest account gets you 10% / 12%, that doesn't go anywhere near comparing with a scheme in which you get an equal contribution put in at the start (100%), and then get interest on top of that.

Kiwisaver is not for everyone but I'd suggest the rate of return can't be a valid reason. The difficulty in getting funds back early I would accept as a valid reason not to join.

[RC1]

just saying not for me as im a kept man and dont have a income for the next 4yrs

[Coldrider]

Don't forget to factor in the FEES that brokers take on the deal/ administration, they vary from provider to provider. This will take abit of homework as well.

[NighthawkNZ]

Don't forget to factor in the FEES that brokers take on the deal/ administration, they vary from provider to provider. This will take abit of homework as well.

and the run of failing finance companies lately... :doh:

[Str8 Jacket]

Yes it is either 4% or 8% but I *believe* you can take a "contributions holiday" and stop paying altogether. So you could pay 4% for say 3 months then take a break, or you could just stay on a "contributions holiday" permanently and pay a lump sum come March 31st to meet the $1042 p/a. This is what I'm unsure about and need confirmation. Either way I'm not too fussed as the free money gained is still the same.

Yes you can BUTyou need to be making payments for xxx amount of time before you can take a holiday. Also be aware that the Govt take back there (ours) $1000 if you "pull out" early. Apparently no one likes it when you pull out early....

Its all on the info that your employer gives you so it must be on the website?

[Coldrider]

You can just pay the minimum for the minimum time to get your $1000's from the govt, you can borrow against it, the govt knows this but isn't fussed as it still encourages savings, something we don't do too well as we always update our MB's first.

[ManDownUnder]

Avoiding the calcluations etc for a second... here's a few things I have in mind.

Once you sign up you can't quit till you're retired
Your employer will possibly take their mandatory Kiwisaver contributions into effect when giving you the next payrise (i.e. if they have to put in 2% of your annual salary, they might give you 2% less payrise - and how would you ever know?)
Who's to say the investment schemes are going to pay dividends at all in the long run?
It's a new, big, complex system where loopholes are yet to be found and exploited (and clamped down on), and problems yet to really manifest themselves.I think that's it... otherwise I agree with getting in as soon as you can for all you are worth.... Tui anyone?

[LilSel]

Im already contributing 2% of my salary & my work is contributing 2% also (got 2% rise & could either opt in early or opt out till it becomes compulsary).
I dont notice the deductions, it goes before I can get my hot little hands on it. If I dont ever get another pay rise in the next 42years, based on what im earning at the moment, when I reach 65, I will get over half a million!!! shit thats something to look forward to... albiet that it is 42 years away!

There was something in Fridays paper (NZ Herald) that had comparisions between the govt approved providers etc... There is also a website that you can visit to find out what fund/provider will benefit you most.

Here is the linky to the calculator etc... (http://www.consumersaver.org.nz/pages/calcform)

There is a fair bit of choice out there.

[LilSel]

Once you sign up you can't quit till you're retired -you can take a 5year contribution holiday (consecutive) so basically if at 60 you wanna retire early, you can take the holiday then and still get paid out the 1000 you got as a headstart many moons before...
Your employer will possibly take their mandatory Kiwisaver contributions into effect when giving you the next payrise (i.e. if they have to put in 2% of your annual salary, they might give you 2% less payrise - and how would you ever know?) -The could do... I however got a 5% rise plus the WHOLE company got an additional 2% that we could choose to either have as cash in hand (taxed) OR start kiwisaver early and not get taxed on it


Thats all I have to add lol :)... Being that I am still 42 years off retiring, I figured it wouldnt hurt to start it up & forget about it, if I dont make it to 65 for some reason, at least the funds that I have saved will go to my children/family anyways...

[avgas]

Avoiding the calcluations etc for a second... here's a few things I have in mind.

Once you sign up you can't quit till you're retired
Your employer will possibly take their mandatory Kiwisaver contributions into effect when giving you the next payrise (i.e. if they have to put in 2% of your annual salary, they might give you 2% less payrise - and how would you ever know?)
Who's to say the investment schemes are going to pay dividends at all in the long run?
It's a new, big, complex system where loopholes are yet to be found and exploited (and clamped down on), and problems yet to really manifest themselves.I think that's it... otherwise I agree with getting in as soon as you can for all you are worth.... Tui anyone?
Its interesting that we both came to the same conclusions without ever talking to each other.
I still don't know why they say that you must invest a minimum of 4% either - considering that interest rates on loans have gone up the proportional amount.
Also 2 days after kiwi saver starts up investment firms go into the pit of despair?

[Hoon]

Yes you can BUTyou need to be making payments for xxx amount of time before you can take a holiday.

Ahh I had a look and you're right!



After you've been contributing to KiwiSaver for 12 months you can apply for a savings break, called a contributions holiday, of between three months and five years, or less than three months if your employer agrees.

There's no limit to the number of times you can take a contributions holiday. If you take one you can still make lump sum payments.

So the first year I will need to contribute 4%.

I also found out that if you contribute less than your employer you will be taxed at 33% on the difference (http://www.employerchoice.co.nz/ask_the_expert_issue1.asp) where as if you meet it you will be exempt so yet another dis-incentive.

Doing the math again:


Year Me Govt Employer Total Contributions for year
2008 $2400 $1042 $600 $5042 (incl $1000 Govt kick-start)
2009 $1042 $1042 $1200-$52.14 $3231.86
2010 $1042 $1042 $1800-$250.14 $3633.86
2011 $1042 $1042 $2400-$448.14 $4035.86

So this shows by skimping out and only paying $1042 instead of $2400 p/a, I will actually lose $448.14 to tax in the 4th year. Guess they got that one covered! Going by that I will probably now pay the min for the 2nd and 3rd year. By then KiwiSaver and the legislation should all be settled so I'll have a better idea whether to risk my $2400 p/a in it or stick with the minimum $1042.

[davereid]

Be cautious of kiwisaver.

1. The only money guaranteed long term is the Gmints tax rebate. Employer contributions will most likely be part of your salary package - so if they don't go into kiwisaver you can get them anyway.

2. Fees are massive - have a look at Gareth Morgans site.

3. Its all based on the age of retirement - they make a big play of the fact its currently 65. It could change, and even if you have saved enough to retire, you may be stuck working till you are 70-75 as you cant get you money.

4. Its not guaranteed... lots of overseas providers offer negative returns... but you still have to contribute !

5. The real killer... most of us are not the same age as our spouse. So if you choose to retire when you are 65, but your spouse is (say) 60 you can do that now. But if you and your spouse are in kiwisaver you cant.

You cant retire until the youngest partner is 65.

This is because the younger partners kiwisaver growth counts as income, as your pension will be abated at 0.70c in the dollar for every dollar of income it makes. (over $80 gross a week.) But it's money you can't spend, thus effectively locking you out of the pension till the youngest partner is 65.

6. If you invest outside kiwisaver you can move the money to a trust, so you will still be eligible for rest home care, that hip operation etc.
But if you are in kiwisaver, the money arrives in you lap at 65.. too late to protect it from income and asset testing.

LOTS OF WAYS IN.... BAIT... NO WAY OUT... Looks like a trap !

[Oakie]

2. Fees are massive - have a look at Gareth Morgans site.


I wouldn't say 'massive' but their fee structure is higher than others in some cases because they are openly targeting serious investors. If you're the sort of saver who puts in the minimum and takes contribution holidays then Gareth Morgan is not for you. For example, their minimum annual fee two years from now will probably be $200 (according to their prospectus). If you've only saved $5000 that's 4% in gone in fees per year. If however you've stashed away $20000 that's only 1% in fees.

Have a look here to compare 1st year fees between different companies http://www.consumersaver.org.nz/pages/calcform

[Winston001]

Check out Gareth Morgan's calculator for fees http://forms.gmk.co.nz/calculators/providerfees.aspx

Also I think Morgan has reduced the annual fee to $100 recently. The whole Kiwisaver concept is a work in progress.

However it is important to take into account the fees charged by the managers. This will make a big long term difference.

So far as I know the fees of the Aussie super scheme are a lot lower than the NZ companies charge for Kiwisaver. The Aussie scheme looks to be a real winner for the average Aussie.

[Oakie]

Fees seem to go between .7% to about 1.7%. I guess even at 2% that's the same as me giving someone $1000 to invest for me and then letting them take $20 of that for their trouble. Seems pretty reasonable to me!

[The Pastor]

only concern is that you prob will miss out on a raise and the the goverment might change in 45 years (when i can actually claim) and take the money and run. They legally can take all the money in kiwisaver, not just there bit.

[Oakie]

They legally can take all the money in kiwisaver, not just there bit.

No they can't. Most of the money going into KiwiSaver is from you and your employer (eventually). It goes to a private investment company/bank or whatever sort of provider and the account is in your name. The government cannot access those funds anymore than they can access funds people had put into their super funds before KiwiSaver.

The only KiwiSaver money that the Gov't can get is employee contributions that can be used to offset an IRD debt, and that is only at the request of the taxpayer.

[cynna]

5. The real killer... most of us are not the same age as our spouse. So if you choose to retire when you are 65, but your spouse is (say) 60 you can do that now. But if you and your spouse are in kiwisaver you cant.

You cant retire until the youngest partner is 65.

This is because the younger partners kiwisaver growth counts as income, as your pension will be abated at 0.70c in the dollar for every dollar of income it makes. (over $80 gross a week.) But it's money you can't spend, thus effectively locking you out of the pension till the youngest partner is 65. !

havent heard of that one before. im 33 and my partner is 24 - so i will be locked out of the pension for 9 years!!!!! if she is still working when im 65 is my pension still abated in the same way? although i suppose her pay is money we can spend. i guess i would have been locked out of the pension anyway is she is earning enough

might have to trade her in for an older model

how much is the pension anyway

the more i look into kiwisaver the more i get confused. i might stick with my current work scheme where i put in 5% and they put in 7.5% (taxed at 33%). i get this money when i leave the company but miss out on the $1000 start up payment and the $1024 tax credit

damn ive get a headache now.....

[Oakie]

5. The real killer... most of us are not the same age as our spouse. So if you choose to retire when you are 65, but your spouse is (say) 60 you can do that now. But if you and your spouse are in kiwisaver you cant.

You cant retire until the youngest partner is 65.

This is because the younger partners kiwisaver growth counts as income, as your pension will be abated at 0.70c in the dollar for every dollar of income it makes. (over $80 gross a week.) But it's money you can't spend, thus effectively locking you out of the pension till the youngest partner is 65.

If that was the case it would be happening already as all those people who currently have retired and have younger working partners would be in that situation. Haven't heard anyone complaining about it over the past 20 years so I can only assume that's not the case...
Oh and I rang the IRD KiwiSaver line (0800 549 472) and they confirmed that KiwiSaver growth is not treated as income for the purposes of NZ Super abatement.

[sweetp]

Hi Folks, I haven't seen anyone suggest the kiwisaver website or sorted.org.nz which will answer a lot of questions.

To throw in my 2 cents worth, the 6 defult schemes all had to pass some pretty vigous tests - including low fees in order to become the schemes the government supports. A number of them are through banks and therefore should offer more security.

Also one other thing to consider is salary sacrifice. This is when you elect to reduce your base salary in order for your employer to put this as "employer contributions" in your scheme. So if you choose to sacrifice 4% they will put this in as the contribution, it does need to reduce every year (and your salary increase) as the compulsary employer 1% kicks in (assuming that it makes it to legislation).

The advantage of this is tax - the amount is tax free, so you benifit by what you would have been taxed at e.g. 33 or 39%. Because KiwiSaver is free from SSWCT then the money is tax free. Obvious disadvantages are, cant access the money till retirement age and it is a little complex and some employers may not want to do it, but it is another way to get some benefit from KiwiSaver.....

[davereid]

I rang the IRD KiwiSaver line (0800 549 472) and they confirmed that KiwiSaver growth is not treated as income for the purposes of NZ Super abatement.

Hmm the government might want to sort its act on this, as I rang WINZ, and they said it would count.

But, even if it doesnt, its still a major problem for those who have a spouse who is younger.

Lets say you are 30, your wife is 20, and you are earning $50k.

At 65, you will have $285,000 saved (based on 8% and http://www.consumersaver.org.nz/pages/calcform)

What will your fees be ? About $3500 a year (http://forms.gmk.co.nz/calculators/providerfees.aspx?sec=2)

Not exactly insignificant !

But it gets better.

You now have this 280K in your lap. If the pension is means tested you are now rich and wont get it. If you need residential care, you are rich, and wont get it. If you want to gift it to your family you can - but any gift over $28k per year is heavily taxed. So you can't even share it with your family.

So you will either invest it, or have to spend it. Spending will work, and good on ya. (except maybe if your motivation was spending money you would have had more fun doing it when you were 40, not 70)

If you invest it, say at 10% before tax, you will earn $28k P.A. before tax. You will pay (at least) 19% income tax on this, and will be left with the change. But you will also be getting NZ super. Trouble is, NZ super is also taxed at 19%. And a 70% abatement scheme exists. So, for every $100 you earn over the threshold of $80, you will pay 19% tax and 70% abatement leaving you with err actually nothing.

So, you will be no richer than if you relied on NZ super. Actually you may be poorer !

But its too late to gift stuff to family. And they wont get F. all inheritance as your old age care will be funded from your kiwisaver.

And then theres the other traps.

Like you and her indoors, take advantage of your kiwisaver to buy your first home at 25. By 30, shes pissed off, taken half the loot and the dog. But you can't get another kiwisaver first loan. You somehow can't quite work out why she can... but now you are stuck with kiwisaver and a mortgage..

Just use your brain..

it has an easy way in
No way out
No real promises
and bait...