Date: 1st March 2019
Proposed changes to the structure of Kiwisaver could see New Zealand’s retirement savings increase, and the risk of retirement savings shortfall decrease, over time. The proposed amendments, which are still at Bill stage, include: additional employee contribution options of 6% and 10%; contribution holidays changes; more options for over 60’s and changes to HomeStart grants.
Let’s take a closer look at each of these changes.
In the beginning of KiwiSaver, the contribution options were 4% and 8%, and any amount that members wanted to voluntarily contribute. Since then, the option of 3% has been added, and this is the default contribution for any new member of KiwiSaver.
The additional options of 6% and 10% make it easier and quicker for people to save for their retirement without having to make voluntary contributions.
Note that a contribution rate to KiwiSaver of at least $87.00 a month gives you the maximum government contribution. This entitles you to the $43 a month (or the $521 annual) tax credit from the government. This can be contributed as $1,043 a year or any other combination.
Contributions holiday is to get a name and time period update.
The term ‘contribution holiday’ will be renamed ‘savings suspension’ to remove the positive connotations associated with the word ‘holiday’.
Currently, a contributions holiday can be in place for a maximum of 5 years, but this will be reduced to 1 year. However, members will be able to roll this holiday over, but it will have to be a conscious choice every year. The goal is to get people involved with their KiwiSaver and start making active decisions.
Currently the maximum age that people can join KiwiSaver is age 65 which is the age of entitlement for NZ Superannuation. This is set to change so that people over age 65 can join KiwiSaver, effectively giving them additional managed fund choices during their retirement. This is important, as since the launch of KiwiSaver, other non KiwiSaver managed funds have dwindled to a handful of options.
Since the launch of KiwiSaver, if someone joins KiwiSaver after the age of 60, their funds are locked in for 5 years. However, people now joining KiwiSaver from 1st July 2019 will not have a lock-in period. All new members will be able to withdraw their funds from their 65th birthday.
This change increases the house price cap for HomeStart grants and Welcome Home Loans to $500,000 for new properties for all areas of New Zealand outside of Auckland, Queenstown Lakes District, Greater Wellington, Greater Christchurch, Hamilton, Greater Tauranga and Nelson/Tasman.
Aligning the HomeStart, Welcome Home Loan and KiwiBuild house price caps will help support the sale of KiwiBuild homes, make administration simpler for buyers and align the caps more closely with development costs in each region.
Note: the house price cap in Queenstown Lakes District is already $600K for existing properties and $650K for new properties.
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