65 to life: Kiwisaver opens the gates
KiwiSaver is poised to open up next year to a new generation of New Zealanders; the older generation.
Under proposed tax legislation, for the first time people aged over 65 would be able to join a KiwiSaver scheme.
But why would they?
At first glance it seems slightly odd that a scheme designed to help Kiwis save for retirement would be much use to the already-retired.
On closer examination, though, the proposal has some logic behind it.
For instance, a surprisingly large proportion of existing KiwiSaver members tend to remain with their scheme past the official retirement age of 65. Under the current rules, while those over 65 can’t sign up to KiwiSaver, there is no requirement for existing members to close down their accounts once they hit the retirement age.
According to a Stuff article published this May, almost 90 per cent of members in the AMP KiwiSaver - one of the country’s largest – stay in the scheme after they hit age 65 and about half continue to save through the fund.
Likewise, Kiwi Wealth head of marketing, Joe Bishop told Stuff that 60 per cent of the group’s over-65 KiwiSaver members retain some money in their accounts.
“At least 20 per cent of our members keep their KiwiSavers going, and continue making contributions,” Bishop said. “They're still working.”
Given that KiwiSaver is a habit embedded with employment it is not surprising that a large proportion of employed over-65s continue to contribute to their schemes.
The number of over-65 KiwiSaver members will no doubt rise further as more and more New Zealanders keep working past the regulation retirement age.
Figures from Statistics NZ show the proportion of Kiwis aged over 65 in full, or part-time employment increased from 11.4 per cent in 2001 to 16.8 per cent in 2006 to 22.1 per cent at the last count in 2013.
The numbers are not yet in from the 2018 census but a further jump in the percentage of post-65 workers is likely. As a BNZ survey revealed earlier this year, almost half of New Zealanders plan to work after the retirement age – for a third of those the decision is a necessity not a choice.
It appears, too, that many over-65 members are happy to keep contributing to their KiwiSaver accounts even without the range of incentives available to the younger folk.
The legal obligation for employers to tip in a matching payment (currently 3 per cent of employee’s gross income) ends at age 65.
The annual government KiwiSaver ‘member tax credit’ top-up (of a maximum $521.43) also ends at age 65 unless the member joins between ages 60-64, in which case it will continue for a maximum of 5 years.
The same incentive-free conditions would apply to over-65s who might join KiwiSaver once the latest government proposal is in place next year.
Some pensioner-age new KiwiSaver members might, of course, be able to negotiate matching contributions from a sympathetic boss: but without any legal requirement to do so this would purely be at the discretion of each employer.
However, even without the financial extras, KiwiSaver does hold a few attractions for the over-65 members including:
- the ability to invest in a regime that is tightly-regulated;
- access to a wide range of reasonably-priced investment products (technically, KiwiSaver fees are judged under a ‘not unreasonable’ test by the regulator);
- possibly better service from fund providers than in non-KiwiSaver investment products such as regular reporting and other member support; and,
- the potential to get personal financial advice through a new breed of automated online ‘robo adviser’ systems that many KiwiSaver providers are developing.
The KiwiSaver ‘brand’ might simply provide another layer of perceived security to retirees who could just as easily invest in similar – or even the same – funds outside the regime. For example, the Lifetime Income Fund is open to investors as both a KiwiSaver scheme (via Simplicity KiwiSaver's Guaranteed Income Fund) and as a regulated retail product.
Whether many over-65s rush to join KiwiSaver without the explicit government incentives remains to be seen. But the 65-plus KiwiSaver member will always have one advantage over younger members: they can withdraw their money whenever they like.
Although the point was lost in the media coverage at the time, the proposed law change will actually enable some over-65 KiwiSaver members to withdraw their savings sooner. As well as scrapping the joining age limit, the legislation removes the rule requiring members to stay in KiwiSaver for at least five years after signing up.
The legislative change would allow someone who joined KiwiSaver at, say, age 63 to withdraw their savings at the standard 65 rather than waiting around a further three years.
Either way, the proposed law – expected to be passed early next year – could be a KiwiSaver generation game-changer.
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