Mary Holm talks about how people are doing KiwiSaver badly and how that can change.
The Financial Markets Authority has just put out of an annual report on KiwiSaver which prompted Mary Holm to look again at our retirement planning.
“We've got over 3 million people in the scheme, which is pretty impressive, but that still means there are about 2 million who aren't.
Mary Holm Photo: RNZ/Cole Eastham-Farrelly
“And these days everybody can join. It used to be people over 65 couldn't, but these days over 65 can join.”
Everybody who can should be in a KiwiSaver fund, Mary says.
“Because you're getting money coming in from the government, and in many cases from an employer, your savings are going to grow quite a lot faster than they would in any other saving scheme.”
Even if you are not employed, it makes sense to put in enough to earn the government contribution, she says.
“If you're not an employee, which means you're including the self-employed, or people at home looking after kids or beneficiaries, then the government puts in 50 cents for every dollar you put in - up to $1042 from you and $521 from the government.”
She suggests such people should set up a monthly direct debit.
“Set that up to put in perhaps $87 a month is a good way to do it, then you're going to have one and a half times as much savings in KiwiSaver, as you would somewhere else.”
For most employees, it's more like twice because they get money from the government and from their employer, she says.
“So instead of retiring with $200,000 you retire with $400,000, it’s very powerful.”
Of the 3 million in a fund, 1 million are making no contributions, she says.
“Which must mean they're either on a saving suspension, if they're an employee, or otherwise, they not an employee, and they just stopped contributing.
“And that's a real pity, a lot of people I think, got out of KiwiSaver, because they said they can't afford it - but get back in again if you possibly can.”
Even $20 a week will mean you get the government contribution of $521, she says
The research also showed people are getting switchy, Mary says, with switches up 57 percent on two years ago.
“Forty percent of those switches in the recent year was to a higher risk funds. And generally speaking, I'd say those are probably good switches.
“People have thought about it, realised that perhaps after they bought the house, they can take a bit more risk because they won't be taking money out until retirement, or they've learnt more about KiwiSaver and they realise that they can afford to be in a higher risk fund.”
If you move into a higher risk fund, you must stick with it, she says,
“Promise yourself not to move down when the markets wobble around.”
Other people are moving to lower risk finds, she says.
“Some research has found that nearly 2800 people in the year made five or more switches during the year,” she says.
This looks like people chasing the market, Mary says.
“The people who switch around tend to do everything too late and they end up way behind people who just get in and stay with it, so please don't do that.
“Some people have a good reason to move, which is because you're moving to a lower fee fund, or because you're moving to a more appropriate risk level for you. But then stay - stay put.”
She says the over 65s should consider KiwiSaver too, although individual contributions will not attract the government’s.
The money is there whenever people want it over the age of 65, she says.
“They can use KiwiSaver like a bank account really and put spending money into a low risk KiwiSaver fund, a cash KiwiSaver fund will probably get them a somewhat slightly higher return than in bank term deposits.
“And then they can use other higher risk KiwiSaver funds for money they're planning to spend within two to 10 years, and then higher risk for money they're planning to spend after that.”
