The Investor: Many Kiwisavers Contribute Too Much Or Too Little

Firstly, the “too muchers”. A recent survey by Mercer found that 44 per cent of salaried people contribute 4 per cent of their pay to KiwiSaver, even though the current minimum is 2 per cent. A further 6 per cent – twice as many are men as women - contribute 8 per cent of their pay.

I suspect many of those who contribute 4 per cent joined KiwiSaver near the start, when that was the minimum employee contribution, and they haven’t changed since. Years ago they adjusted to having that much less in their pockets, and they like seeing their account balances grow steadily.

There’s nothing really wrong with putting in more than you have to. It’s just that normally you can’t get the money out until you reach NZ Super age.

Some people like that inaccessibility. They reckon they would spend the money if they could get their hands on it. But the counter argument is that they can’t predict when they might really need money.

While you can withdraw KiwiSaver money if you strike financial hardship or serious illness, there are some fairly big hoops to jump through to get it. And what if a family member needs the money? Or - on a more positive note - what if a relative or friend has a great idea for a business start-up that you would like to support?

Here’s a suggestion: If you like the KiwiSaver fund you’re in, ask your provider if they have a similar non-KiwiSaver fund, with similar fees. Many do. You could cut back your KiwiSaver contributions to 2 per cent of pay – rising to 3 per cent next April when the minimum rises – and put the rest into the alternative fund.

Set it up so the money is transferred to the alternative fund the day after payday. And promise yourself you won’t touch it unless it’s for a good reason. It’s not as if you’ll be able to access it easily through an ATM.

Take care with this idea, though, if you earn less than $52,150. You’ll need to contribute more than 2 per cent of your pay if you want your annual contributions to total at least $1043, so you get the maximum $521 tax credit. You can deal with this by sending deposits directly to your provider before June 30 each year.

What about KiwiSavers who contribute too little? A full 45 per cent were classified as non-contributors in the Financial Markets Authority’s annual report on KiwiSaver last year – up from 40 per cent the previous year and 23 per cent the year before that.

Given that non-contributors were defined as people who hadn’t deposited money in the previous two months, the 45 per cent would include some non-employees who contribute once a year. It would also include under-18s, who don’t get the tax credit and so have less incentive to contribute.

But there must be many others who are on contributions holidays. If that’s you, I urge you to try to contribute at least something before June 30. Having your money boosted by 50c for every dollar you deposit is a big plus.

Similarly, non-employees who are free to contribute any amount whenever they like should try to get up to $1043 into their account by the end of June.

It’s not every day that the government hands out money. Get your share.