If you have KiwiSaver, there’s a few changes you should know about. Two of them are taking effect from April 1st, 2019.
Change number 1 - More contribution options.
Up until March 31st, 2019 - you could only contribute either 3%, 4%, or 8% of your earnings to KiwiSaver. Now, you will be able to also choose 6% or 10%.
This change will give KiwiSaver members more flexibility in how much they put away into their nest egg.
This won’t have any effect on how much your employer legally needs to contribute. Their contributions are still fixed at a minimum of 3% - however they may choose to match you at a higher rate. If you’re not sure what the policy is at your workplace, it’s worth asking. If your employer is willing to match you up to 4%, or even more, you might seriously consider increasing your own contributions.
Change Number 2 - ‘Contributions Holidays’ are now ‘Savings Suspensions’
This doesn’t sound like much, but it is more than just a name change.
A ‘contributions’ holiday was a tool available for KiwiSaver members, where they could take a break from contributing into their KiwiSaver account. The maximum holiday term was five years. It was also available up until March 31st, 2019.
Issues with taking a contributions holiday:
Stopping contributions means missing out on the Government’s contribution of $521 per year (As long as you contribute at least $1,043 per year).
It also means missing out on any potential investment returns from that money being invested.
People could forget that they had activated the holiday, and stop contributing to KiwiSaver for a full 5 years. Missing out on a large chunk of employer contributions, and ending up worse-off down the track, when buying their first home or hitting retirement.
The word ‘holiday’ makes people think of a relatively short, positive thing. But in reality, the ‘Contributions Holiday’ could last up to 5 years if you forgot about it, and potentially leave KiwiSaver members in an unfavourable financial position.
So, the ‘contributions holiday’ is no more. Now, you can make a ‘savings suspension’.
The main thing to know about the new ‘Savings Suspension’ tool
It only lasts a maximum of one year. At which point you may choose to go on another Savings Suspension immediately.
So, they changed the name from ‘Contributions Holiday’ to ‘Savings Suspension’, and they lowered the maximum period of a single break from five years to one year.
The new name is more accurate, as you are essentially suspending one of your savings strategies by activating this tool. It’s also less of a negative if you were to forget about it, as it now lasts a maximum of 12 months, instead of five years.
Remember, 3% is the minimum amount you can contribute to KiwiSaver. if you are contributing more, but are finding it too much pressure on your personal cash flow, it is absolutely fine to reduce your contributions down to the 3% mark. This can be a much better strategy for some people, as it means they see a little more cash in their account each time they’re paid, but they still receive the benefits of a 3% contribution from their employer, the free $521 from the government each year, any investment returns that might be achieved, and the compound interest effect of continuously making contributions.
While we’re here, it’s also worth pointing out two changes coming from July 1st, 2019.
Change 1 - People over the age of 65 can join
A lot of people are aware that you can withdraw your KiwiSaver money once you hit 65 year old. But there was also a rule that over 65’s weren’t allowed to join.
From July onwards, people over the age of 65 may join, and withdraw their money whenever they like.
The benefit of joining is that if you are over 65 and are working, your employer may decide to continue to contribute to your KiwiSaver (although they are not legally obliged to).
Also, your KiwiSaver account may earn better interest than keeping the money at a bank. However this all depends on the type of fund your money is in, and how the market is performing.
Change 2 - No lock in period for over 65’s
Pre-July, if people join between the ages 60-65, there is a five-year lock in period, where the funds cannot be released.
So fro example, if a 63-year old joins KiwiSaver, they will have to wait five years to withdraw their funds - they cannot simply withdraw at age 65
From July onwards, this lock-in period won’t apply