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Keeping KiwiSaver alive at 65
 
 
Q.        My husband is turning 65 this month. We are self employed and he has been a KiwiSaver customer, presently with Gareth Morgan, for around 5 years. We have learned that after his birthday he will no longer receive the government contribution. As we are self employed and therefore have no employer contributions this makes KiwiSaver less attractive. I assume he will receive this year’s government contribution though. We can either withdraw the whole lot in July this year and put it in the bank or keep it in and reduce contributions until we retire fully. Are there any other options? 
 
A.         Yes you are correct - once you have been in KiwiSaver for 5 years and turn 65, then you no longer receive the Member Tax Credits of up to $521 per year for $1042 of your own contributions. The MTC are usually paid out in July, or they could be paid out early if your husband chose to withdraw as soon as he was eligible.
 
Your decision on what to do will depend on your financial situation.  Assuming your husband is eligible to receive NZ Superannuation then his income will increase and he may not need to access his KiwiSaver funds until he stops working. If you are earning more than you are spending, then you can either continue saving into KiwiSaver or into some other investment vehicle, or a savings account with the bank. The minimum employee contributions increase to 3% from this week, as do employer contributions, but self employed people can contribute as much or as little as they choose to their KiwiSaver scheme.
 
KiwiSaver provides an opportunity to diversify one’s retirement savings and for those over 65 it is readily accessible. Check with the fund manager as they establish their own rules around withdrawals. When the first members reached the age of eligibility in 65 in July last year there was a lot of anticipation as people looked forward to getting their hands on their money.   Now that we are 9 months down the track, what have people actually been doing when they reach the age of eligibility? 
 
I asked Joe Bishop, Head of Wealth Products at Gareth Morgan Investments, what their experience had been to date. He replied: “Our experience is that the majority of our members who are eligible to withdraw have kept their KiwiSaver account open. As at the end of February 2013, less than a third of our eligible members had cashed up their account and left KiwiSaver completely. Around 8% of eligible members have taken the opportunity to access some of their money. Most of these withdrawals were lump sums, but some members are topping up their income by making regular withdrawals.   Well over half of our eligible members have chosen to stay in KiwiSaver without dipping into their account at all. With many of those members still working, we are seeing a good proportion keeping up their savings habit by continuing to make contributions.   Compared to the alternatives KiwiSaver is a relatively low-cost option for managing retirement savings, is well-regulated, and offers a broad choice of investment options. Some members are making use of this by transferring other investments to their KiwiSaver account to consolidate their retirement savings into one tidy nest egg.  We actively contact our members as they approach eligibility to withdraw, so this may have an impact on how well our members understand their options.”
 
It is important to remember that once a person over 65 takes all their money out of KiwiSaver and closes their account, they cannot rejoin the Scheme.
 
There are other managed funds that your husband could save into, but the fees will probably be higher than his KiwiSaver scheme.   A bank account will give a predictable return but with interest rates currently low this is only useful for shorter term savings. If he is happy with the fund’s asset allocation and performance, then there is no reason why he shouldn’t continue with KiwiSaver.
 
 
Shelley Hanna is an Authorised Financial Adviser FSP12241.  Her disclosure statement is available on request and free of charge by calling 8703838.  The information contained in this article is of a general nature and is not intended to provide personalised advice.  If readers have any KiwiSaver questions they would like answered please go to www.peak.net.nz or email shelley.hanna@peak.net.nz.