KiwiSaver at 18 and 65
Q. I turn 65 in early October. Do I have to cash in my KiwiSaver at that date? I won’t be working and I know there is no Government top up once I have turned 65. Also all this carry on about losing the $1000 kickstart from the Government, they say it will discourage new KiwiSaver entrants. But isn’t it compulsory if over 18 years anyway when they start a job? They are hooked in automatically, and don’t need $1000 incentive to join, as they are in it whether they like it or not.
A. You certainly don’t have to cash in your KiwiSaver at age 65. I recently heard of someone who cashed in their KiwiSaver and then asked their bank to recommend a suitable diversified, low cost investment for their money. They had several options but all had higher fees than the KiwiSaver account that they had closed (at the same bank). Because they were now over 65 they could not re-open their KiwiSaver account.
You will be entitled to MTC until the day you turn 65. If your account is still open in July 2016 then you will receive your MTC at that time. If you do decide to close your account after your 65th birthday but before July 2016, then your fund manager can apply for your MTC early but check with them first and find out how long this will take.
It appears that cancelling the kickstart has cut the number of new KiwiSaver enrolments quite dramatically. The change does have more impact on people not working, as the $1000 gave their accounts a healthy start and in most cases returns have exceeded the cost of holding those accounts without the need for regular contributions. Now new members will need to make some contributions to keep ahead of the admin and fund manager fees, which are not high when compared to other managed funds but will make a dent if the account balance is less than say $500.
You are right that most people over 18 starting a new job should be signed up to KiwiSaver automatically, and 3% of their wages is paid into the Scheme along with 3% from the employer. However, they can choose to opt out between 2 to 8 weeks of starting their job in which case their contributions are returned to them.
However, not all new employees over age 18 are automatically enrolled in KiwiSaver. Those that are not include casual employees who receive holiday pay with their wages or someone on a temporary contract for less than 28 days. I have received several complaints from the parents of young people who realise after weeks or months of work that they have not been automatically enrolled into KiwiSaver, either because they started their job before they turned 18 or because the job was casual and then became permanent. Someone in this situation can download a KS2 form from the IRD website and give it to the person in charge of payroll, and they will be opted into the Scheme.
Someone who has missed out on employer contributions because they were not opted into KiwiSaver when their job became permanent or when they turned 18 can talk to IRD about their situation, but bear in mind that you probably also want to keep on good terms with your employer. Once you have worked out the amount you may have missed out on, you may decide to let it go.
It is important to know that anyone employed on a casual or temporary basis can join KiwiSaver and ask their employer to make deductions. In these cases the employer is required to do so and if they are over 18 the employer must also pay 3% compulsory employer contributions on the employee's behalf.
Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 06-8703838 or go to www.peak.net.nz. The information contained in this article is of a general nature and is not personalised. Send your KiwiSaver questions to shelley.hanna@peak.net.nz.
As published in the HB Today 7 July 2015