KiwiSaver has now been going for about 10 years, but some of the inner workings are still a bit of a mystery to many, and there's further questions about fees, government regulation, kids funds and more.
This week, Mary Holm answers questions submitted by our listeners to clear up some of these mysteries and gives some of her valuable advice on how to handle your own savings.
Arman asks: "I am so new to KiwiSaver. I keep hearing from friends and also on your show from Mary about it but I really don't know the basic concept of it and how it works."
Mary says while most people know the basics, that's not true of everyone.
"Good on him for writing this letter and coming back to the very basics.
"In the end I think the best website is the Sorted website which is run by the commission for financial capability - partly because it’s government funded and it’s not put together by a provider.
"A lot of the KiwiSaver providers do really good education stuff but it could be biased a bit towards their products
She suggests checking out the KiwiSaver basics page.
“They’ve got some basic information. When it all boils down to it though the very basic idea is that you‘re saving money and the government is also putting money in as well - they put 50 cents for every dollar you put in up to a maximum of $521 from the government for $1045 from you.
"Your employer, if you’re an employee, also puts in … you’re putting in three percent or higher [of your pay] and they’re putting in three percent."
Mary says the personal contributions can be set at 3, 4 or 8 percent.
"It started out at four or eight, from memory, and so they just sort of came up with those numbers.
"I think quite a few people were saying 4 percent’s too much so they added 3 percent to the mix ... I think it’s the retirement commission has been suggesting putting in a six percent as well."
"If you are putting in 3 or 4 percent and you’d like to put in more - but not right up to 8 percent - you can directly send any other contributions you like directly to your provider: not doing it through your employer."
Andrew asks: How can we trust the govt to not just nick the KiwiSaver funds when they get into deep enough financial trouble?
Mary says realistically, the government is never going to take your personal KiwiSaver funds.
"KiwiSaver is your own money - it’s in your own account in your name - I mean, the bank could theoretically commandeer everybody’s bank accounts and take all our money from everybody but it’s as silly as that actually.
"There’s no way you or I or the Prime Minister or anybody can guarantee what future governments are going to do ... but realistically it’s not going to happen where the government would make any change that radically made KiwiSaver worse.
"Certainly not taking your money, any more than they would raid your bank account.
"Remember, we’re a democracy and governments can’t do mad things like that and get re-elected."
Jean asks: "We put money into KiwiSaver for the grandchildren when it started, thinking their money would increase. However, their savings are just about the same now as when we started ten years ago. I am sure fees have increased exponentially in that time ... Am I correct in thinking the fees structure has changed? KiwiSaver must be a real cash-cow for KiwiSaver schemes. Should there be more regulation?"
Mary says it's absolutely shocking if money has been sitting for 10 years and hardly changed, but it could come down to too-high fees. She says they are usually broken down into two - a flat fee and a percentage fee.
"I’m pretty sure with every single provider this is true ... the flat fee is typically between $35 and $40-ish per year in most cases.
"It’s not a huge amount for most people, but of course if you’ve got a kids’ account and there’s just $1000 … if they’re being charged $30 or $40 a year on that, that really does eat into it.
"After that there’s a percentage fee which the provider will charge, which is a percentage of your balance and so obviously the higher your balance is the bigger that fee is.
"Probably what’s happened is the balance is pretty low, but it also sounds to me as though their provider has got high fees. I would suggest they move the kids’ account - it’s not hard to move accounts from one provider to another, all you have to do is go to the new provider and ask them to do the moving for you."
On the plus side, Mary says rather that going up fees have tended to be going down, and there's some good deals for children.
"The market, I think, is taking care of the fact that KiwiSaver fees in some cases are definitely too high ... That's a better way to do it than for the government to regulate it really
"There’s new entrants into KiwiSaver, a notable one was Simplicity two or three years ago now who’ve come in with lower fees, and there are others.
"Juno has now just recently started a KiwiSaver scheme, and they’ve got no fees for children, and they’re not the only ones doing deals for kids."
"Craig’s investment partners and Simplicity charge no annual fee - they do charge a percentage fee ... it’s not a huge fee if the balance is low.
"New Zealand Funds also offers a deal that’s slightly complicated but it’s a good deal for children; Aon gives you a small reduction on your annual fee but not much."
She says to remember that the fees will likely change after the child turns 18, so it's worth shopping around again at that point.
"You don’t have to stick with these ones once the kid gets to 18 and the deal’s no longer there - they’re hoping you will of course but you don’t have to."
Kellie asks: "In 2006 I signed my then 10-year-old son up to KiwiSaver to take advantage of the government's $1000 kick start. Twelve years on, as a millenial working a minimum wage job he is constantly having to opt out ... why, when it was me who signed him up at the age of ten, doesn't he have the right to decide whether he can opt out of the scheme altogether?"
Mary suggests the young man look into going on a KiwiSaver contributions holiday.
"It’s up to five years, that holiday - and no one should be bothering him again for another five years.
"Maybe he’s changing jobs a lot and every time he gets a new job he’s got to explain that to them but it shouldn’t be that hard to explain to his employer ‘no, I don’t want to be contributing, I want to be on a contributions holiday’.
However, Mary says that if he's working full time he's also likely to be able to afford to make minimum contributions.
"Her son’s on the minimum wage and that’s $16.50 and hour, and when you work that out if he's working a 40-hour week and if he were just putting in 3 percent of his pay that’s less than $20 a week.
"He’ll be getting $20 from his employer and another 10 from the government for a while during the year. His money will be more than doubled. For people on very low wages it’s more than doubled.
"Then he is getting in there - building up this habit of saving, and as his pay goes up this is building up a chunk of money to buy a first home with. It’s a real pity if the kids aren’t in there doing that."
Carol asks: "I am considering putting savings into a non-KiwiSaver investment portfolio, I am concerned about being locked into rules about when and how much I can withdraw ... I intend to keep putting in the minimum to get the yearly government top up to my KiwiSaver. It's just that I can see many private investment funds which look very similar to my existing KiwiSaver portfolio If I need to take my money out I can do it whenever I like and don't have to wait until retirement age, conversely I can keep adding to it as long as I wish ... Is there any point in sticking with a KiwiSaver fund instead of a personal investment fund?"
Mary commends Carol for continuing to put in the minimum to get the government contributions.
"Anyone in any situation, I really recommend they keep putting in $1043 a year, get $521 form the government - why wouldn’t you - but she’s saying what about putting the extra somewhere else.
"The obvious advantage of doing that … is you can take it out whenever you wish.
"She also says ‘I can keep adding to it as long as I wish’ well that’s actually true of KiwiSaver as well - so that’s not a particular advantage … you can always put more money in.
"The main argument against doing what Carol’s suggesting is that the fees tend to be higher on similar non-KiwiSaver funds than on the KiwiSaver ones, so just watch for that.
"Other than that, I think it’s a good idea to put money in a non-KiwiSaver account as well."
Rosemary asks: "I'm a late 50s primary school teacher. I belong to the Teachers Retirement Savings Scheme and am tracking okay with that, but wonder if I should also join KiwiSaver. This would mean no employer contribution ... is it still a good idea to join with probably six years teaching full or part time ahead? ... In your opinion, with a freehold house and TRSS, would growth investment be best way to earn a little extra?"
Mary says the same situation is true for many employers who provide superannuation schemes, and Rosemary is correct in thinking she won't get employer contributions to both.
"Nonetheless it’s a really good idea to get into KiwiSaver as well," she says.
"Let’s say she’s got six or seven years before she gets to 65 … about $3000, $3500 of government money that she’s missing out on otherwise, so it’s a really good idea to do it.
"If she decides to retire before 65 she should still try and get that $1043 into the KiwiSaver every year to get the $521 coming back."
However, in the first year there's also the problem of being able to contribute to both schemes, Mary says.
"There’s nothing wrong with doing that but she might say ‘look I don’t really want to contribute that much to both schemes'.
"Just do it for a year, because after a year you can then take the contributions holidays I’ve been talking about.
"What she should be doing is getting $1043 into the KiwiSaver scheme in order to get the maximum tax credit. The easy way to do that is to set up an automatic payment from your bank account to KiwiSaver - of either $20 a week or $87 a month will take care of it."
Mary says a growth fund can be a good idea but it depends on the circumstances.
"If you’re doing it in a growth fund you really want to be doing it with money you plan to spend 10 years or more away ... so, it depends. If she’s in a higher risk one on the [TRSS] she may want to look at putting [KiwiSaver] in a lower risk one."
Anonymous asks: "My concern about KiwiSaver ... that by the time I reach retirement in 20 years [the government] will reduce superannuation payments because of KiwiSaver."
Mary says she thinks it's unlikely the government will reduce NZ Super too much.
"Because of the fact that there are so many voters in that age group, and their children won’t want to see mum and dad ripped off. Old people vote too - much more than young people.
"Even if it did go down somewhat though, you still want to be one of the ones who’s got big savings elsewhere."
She says if the question is about means testing, it's also not such a problem.
"Means testing - for those who aren't familiar with that term - is ‘we’re not going to give super or we’re not going to give as much super to better-off people’
She says it's common in many other countries, but New Zealand has been praised for not using it.
"One of the big problems with means testing is people then use family trusts and all kinds of other ways to get around it so they look as though they’re poor, they give money to their kids on the deal that the kids will actually quietly give it back to them.
"There’s no guarantees with future governments, but you can be sure the government's never going to set it up so that people with bigger private savings are going to be worse off or even as badly off as people with smaller private savings."
"Young people at the time would say I'm not going to save if I’m going to end up worse off’ so even if they did means-test a bit, they’re not going to set it up so you’d be worse off if you save more."