The answer is a simple yes. Yet, changing the contributions rate to your KiwiSaver is not something that comes to mind often. Most people, myself included would more than likely only think about it when changing jobs and that KiwiSaver form gets presented to you again by your new employer. But did you know that you can change your contributions even in times when you are not changing your job? I was wondering about that myself so I started doing some research on the subject. After all, here at National Capital we make it our goal to educate ourselves and our clients on as much as there is to know about KiwiSaver.
What I found is that there are a few things that you need to keep in mind before making serious changes to your KiwiSaver scheme.
- We mention this quite often in our blogs because it is very important; you can only withdraw your KiwiSaver once you turn 65, with the exception of a few special circumstances such as illness or financial difficulty. So whatever money you contribute now and in the years to come is locked away and you cannot use it until you retire.
- Another thing you need to consider is whether you have a rainy day fund or not. KiwiSaver is a very, very good savings scheme that is designed to alleviate the financial burden in retirement. It is also a very, very good savings scheme that is designed to alleviate the financial burden in retirement. So you see, my point is that you need to make sure you have a fund for a rainy day first that you can access easily and at any time. A fund that will allow you to cover your costs of living for a period of three to six months. Life can be unpredictable and it is always smart to have some accessible funds before you put more money away.
- Third thing to seriously consider is can you afford to put more money into your KiwiSaver? When the government added some extra options to the KiwiSaver contribution rates in April 2019 a lot of people were excited about the new development. According to research, 27% or one in four people were considering changing their contributions. Almost everyone, 97%, out of the people considering the change were thinking of increasing said contributions. The government offered new contributions of 6% and 10% to the already existing options of 3%, 4% and 10%. Increasing your contributions for example from 3% to 6% could make a huge difference to someone’s retirement savings. However, it is important to keep in mind that it will also make quite the difference to your current cash flow. You must make sure that you have enough money to cover day to day expenses, mortgage needs and other debt repayments before deciding to increase your contributions.
- Increasing the contributions’ rate is not for everyone. What we mean is that it is not a good option for everyone for reasons such as debt and/or mortgage repayments must take priority. However, there are some cases that would benefit deeply from these increases. For example, people that are close to retirement or those approaching their goal of purchasing a first home would do well to increase their contributions. People in the lower income bracket or those working part time would also do well to increase their contributions. This way you can reach the government threshold of $1042 per year in order to receive the $521 of free money that comes your way. However, this is only to be done if your day to day finances can handle the change and it does not leave you in the lurch when it comes to paying your rent, mortgage or bills.
- Another important thing to consider is whether you have the discipline to maintain a steady savings account if you choose to go in another direction from KiwiSaver. KiwiSaver is a good savings scheme and it works exactly because the money comes out of your salary automatically through the IRD and you cannot access it on a whim. It’s important to have the discipline to do the same thing on your own and only use those savings for opportunities that have been well considered and are thought to be beneficial to one’s future.
- If you think you can do better investing your own money or not is another thing that should be well considered before changing your contributions to KiwiSaver. There are many other options out there on how to invest your money that do not lock your money away for years at a time. When you are close to retirement this may not make much of a difference but when you are in your 20’s, 30’s or 40’s, having access to your money might be something that is important to you.
- The amount of risk you are willing to take when investing is also important to mull over. Assets such as property or shares are much more high risk than a managed fund such as KiwiSaver. Partially because of the pure nature of the assets, partially because of the heavy regulations the government places on KiwiSaver. It is designed to generally be a lower risk, more secure on the returns you can expect. There are variations within KiwiSaver and the schemes go from Conservative with very little risk to Aggressive with a higher potential of risk. Yet, it is diversified or spread out in a manner that over a period of time it balances out to match your tolerance to risk. This is where National Capital can help you decide. By taking our KiwiSaver HealthCheck we can help you quantify your aversion to risk and match you with the scheme best suited to your needs and to your levels of comfort. Shares and property are much less predictable and although you can diversify these assets as well, it is their nature to be higher risk/higher reward.
- Last but not least, it is important to remember that the different providers come with different fees and you must make sure that the returns you are receiving for your contributions are worth the fees you are paying to your KiwiSaver provider.
There is good news still. You can change your contribution amount every 3 months so if for whatever reason the changes you made to your KiwiSaver scheme do not sit well with you, you can reverse them.
There are three ways that you can change your contributions:
- You can write to your employer directly; either a letter or by email and notify them of the desired change.
- You can fill out a new KS2 form which you can receive from your employer.
- You can contribute directly to the provider of your scheme. This is particularly useful for self-employed or unemployed individuals.