KiwiSaver is getting more flexible, and opening its doors to those over 65 – although not completely. Some changes took place on April 1 this year, and others will take place on July 1.
Mary Holm explains what it all means.
The changes already in place give employees more contributions options. You can now choose to put in 3, 4, 6, 8 or 10 percent of your pay.
Also, the maximum contributions holiday has been reduced from 5 years to one year. And its name has been changed to savings suspension. The new name will hopefully make savings suspensions less appealing.
In another name change, the tax credit has become the government contribution. The old name was misleading as it had nothing to do with tax.
From July 1, people over 65 will be allowed to join KiwiSaver. However, they won’t receive the government contribution, and it won’t be compulsory for employers to contribute, although many voluntarily contribute for employees over 65.
Also, the five-year lock-in will end on July 1.
This currently applies to people who join KiwiSaver between 60 and 64, and means they can’t withdraw money from KiwiSaver until they have been in the scheme for five years. However, they do get the government contribution and compulsory employer contributions during all of those five years, even after they turn 65.
In a related change, people already subject to the five-year lock-in – including anyone over 60 who joins between now and July 1 – will be given an option.
From 1 April 2020, they can choose to end the lock-in and gain access to their money once they turn 65. But if they do that they will lose the government contribution and compulsory employer contributions.
There are a couple of actions people should consider before July 1:
- The usual advice – make sure your contributions for the year July 1 2018 to June 30 2019 total at least $1042. That way you will receive the maximum tax credit – now called a government contribution – of $521.
- Anyone aged 60 to 64 who is not in KiwiSaver should consider joining before July 1. That will give you five years of government contributions – totaling more than $2600 – and also five years of compulsory employer contributions if you are an employee. To get these incentives, you won’t be able to access your money until the five years are up. But from April next year, if you change your mind and want to get the money out, you can end the lock-in and lose the government contributions and compulsory employer contributions.
For everyone else, there’s no rush. But employees should consider changing their contribution rate and people over 65 should consider joining KiwiSaver – to get access to some good investments.
Should you contribute more to KiwiSaver? Definitely not if you have high-interest debt. Pay that off first. And if you have a mortgage it’s probably better to also pay that off as soon as possible.
If these don’t apply, you should increase your contributions if:
- You earn less than $35,000, so you can be sure to get the maximum tax credit.
- You would like to save more for retirement and would otherwise spend it – you need the money to be locked in.
- You want to keep your retirement savings simple.
But others might consider instead putting extra savings into a non-KiwiSaver fund. That way you can access the money before you turn 65 if you find you need it. You could set up an automatic transfer from your bank account the day after you get paid.
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