KiwiSaver: still a great way to save for retirement

As expected, the 2011 Budget announced changes to the very popular KiwiSaver savings initiative which now has over 1.68 million members and is growing at a rate of around 20,000 new members a month. The Government has stated that KiwiSaver is unaffordable in its current form, and in order to reduce government debt, components of KiwiSaver need to change.

What are the changes?

There are three main changes to KiwiSaver that will be implemented progressively:

1. The maximum Member Tax Credit (MTC) will be halved from $1 to 50c for every dollar a member contributes, up to a maximum of $521.43 per annum. To be eligible to receive the maximum MTC members still need to contribute at least $1,042.86 per annum.
   This change will relate to contributions made from 30 June 2011 onwards, but because the MTC is paid annually in arrears, members will not receive the new MTC amount until after 30 June 2012.
2. Currently, contributions from employers of 2% of an employee's gross salary or wages are exempt from Employer Superannuation Contribution Tax (ESCT ). From 1 April 2012, all contributions from employers will be subject to ESCT at the employee's marginal tax rate.
3. From 1 April 2013, it is proposed that the minimum employee and employer contributions will rise from 2% to 3% of an employee's gross salary or wages.

Whilst these changes may sound negative, the reality is that KiwiSaver still provides generous incentives and remains a robust retirement savings scheme. All Kiwis who are eligible should actively consider joining, and likewise existing members should not be discouraged by these changes.

KiwiSaver remains a great way to save for retirement. Here are a few reasons why:

• Members joining KiwiSaver for the first time still receive the government's $1,000 kick-start contribution. (subsequently removed May 2015)
• The Member Tax Credit is still available to eligible members (albeit at a reduced rate).
• Employer contributions remain compulsory for employers of eligible members.
• A 'First Home Deposit Subsidy' is still available to eligible members.
• KiwiSaver is a relatively low-cost savings scheme compared to other retirement plans.
• Members have flexibility to increase or decrease their contributions (subject to the minimum contribution level) at any time.
• Members can, if eligible, stop their contributions for a specific period by applying for a contributions holiday.
• KiwiSaver is available in a range of professionally managed funds to suit different circumstances.

To maximise your KiwiSaver savings, there are a couple of key things you should consider, now and in the years to come:

1. Make sure that you understand current and any future changes to KiwiSaver, and what they mean for you and your retirement savings goals.
2. Ensure that the KiwiSaver investment funds you are invested in match your risk profile, situation, needs and financial goals. One of the advantages of KiwiSaver is that it provides access to a range of investment funds that suit different circumstances.

Give yourself the best possible chance of achieving your retirement savings goals by being proactive about your KiwiSaver investment. Seek information and ask questions if there is something you don't understand, and most importantly talk to your financial adviser if your circumstances change.