The current cost of living has not been kind on our savings (Image: CSA Images via Getty)

MoneyNovember 6, 2019

Understanding KiwiSaver, part one: The basics

Contributing writer

The current cost of living has not been kind on our savings (Image: CSA Images via Getty)

How to stop procrastinating and actually (finally) get on top of KiwiSaver. Because there’s a good chance that if you’re reading this, you don’t know a single thing about it.

Read the full series here.

I don’t actually remember ever starting a KiwiSaver, and that’s because I didn’t – my parents started one for me. Ever since then, KiwiSaver’s been one of those things that’s followed me around for my entire adult life, popping up on my paychecks, my bank statements, my daily drip-feed of news – wholly unintrusive, but unmistakably there.

But sometimes I forget it’s there, as do a lot of people in their twenties, working in full-time salaried employment and left with barely enough mental/physical muster to think past next week, let alone 40-50 years ahead of time. It sits there idly, growing in size, but it could be much bigger and better, if only we put just a little bit more thought into it.

The problem is, a lot of us don’t understand KiwiSaver. I don’t understand KiwiSaver: I don’t understand how it works, where it comes from, and what I’m supposed to actually do with it. But I want to understand, and I want others to as well. The pessimist in me thinks none of this matters – by the time I’m 65, we’ll probably be nearing some sort of climate change-induced apocalypse where all sense of monetary value has collapsed anyway. But the optimist in me – as timid as she can be – tells me we’ll be fine, we’ll keep going, and that one day, we’ll all have the chance to retire into blissful old age.

So with a little help from Sorted (and a lot of help from its managing editor, Tom Hartmann) here’s what you need to know to get ready. Because the sooner you do it, the better, and what better time is there than now?

What is KiwiSaver?

KiwiSaver is a scheme that helps us save for retirement. It was set up by the government more than a decade ago (2007 to be exact) as a way for us to build a nest egg of cash that doesn’t require us to rely entirely on NZ Super, aka the government pension that’s paid out to all New Zealanders over the age of 65. How much you get with NZ Super is inflation-adjusted year-on-year, but it isn’t a whole lot to live on (especially if you want to be living that swanky life), and in the future, who knows? It might even cease to exist.

How is it helping me save for retirement?

What it does is it takes a small percentage of your pay (salary if you’re on a fixed amount, wage if you’re being paid by the hour) to put into your KiwiSaver account, kind of like how you put a portion of your pay into a savings account for a new car, a trip around Europe or for when your fridge inevitably breaks down.

The difference with KiwiSaver is you won’t be able to withdraw those funds whenever you like. Most humans are naturally inclined to spend when they have access to a large sum of money (hence it takes months, even years, to get that new car or trip around Europe), so other than rare exceptions, you won’t be able to touch your KiwiSaver funds until you: a) turn 65, or b) want to buy your first home.

KiwiSaver also helps you save for retirement by giving you money, and by that, I mean that if you’re contributing a portion of your pay to your account, your employer and the government will contribute to your account as well. For employers*, they’ll contribute at least 3% of your pre-tax salary or wage to your KiwiSaver, while the government will contribute 50 cents for each dollar you contribute (the maximum being $521.43 per year).

How much do I have to put into my account?

You can choose to put in 3%, 4%, 6%, 8% or 10% of your gross (before tax) salary or wage. So say you earn $500 per week: you can choose to contribute $15, $20, $30, $40 or $50 of that $500 to your KiwiSaver account.

Alternatively, you can contribute nothing at all. KiwiSaver is a voluntary savings scheme meaning if you don’t want to contribute then you don’t have to. Keep in mind though that most people get automatically enrolled in KiwiSaver when they start their first job, so if you don’t want to pay anything, you’ll have to consciously opt-out.

Who can join?

Pretty much anyone, really. Adults, children, over 65s… as long as you’re a New Zealand citizen or entitled to live in New Zealand indefinitely. You’ll also have to live (or normally live) in New Zealand.

How does KiwiSaver work if I want to use it to buy my first home?

If you decide you want to be a homeowner, then you may be able to make a one-off withdrawal from your KiwiSaver account. To be eligible, you a) have to be a KiwiSaver member for at least three years, and b) Intend to actually live on the property (aka you’re not purchasing the house as an investment). If you want, you can apply to withdraw all your savings, but you’re required to leave at least $1,000 in your account.

So this KiwiSaver account… where exactly is it?

The short of it is that your account is held by a KiwiSaver provider, usually a bank (eg: ANZ) or an investment company (eg: Milford) and not the government. If you don’t know who your provider is, contact Inland Revenue (or log in to your MyIR account if you have one) to find out. And don’t worry: not knowing is a lot more common than you think.

According to one 2016 study of almost 800 KiwiSaver members, 14% of people couldn’t name their provider, and the truth is that for a long time, neither could I. I was in my mid-teens when KiwiSaver first started and my parents signed me up purely because it would bag me a free $1,000 from the government (aka the kick-start payment which no longer exists). As an incentive to join, it worked wonders. But for many like myself or those who were automatically enrolled through work and never thought about it again, it meant assuming a passive, often uneducated role in one’s KiwiSaver account. Hence, why we’re all here now: swimming in the same pool of financial ignorance.

And what can I do to escape this pool of financial ignorance?

Honestly, if you’ve made it this far in the piece, then you’re already one step closer to being enlightened. KiwiSaver is just one part of the financial journey, but it’s an important part – one in which we’re supposedly missing out on earning tens of thousands of dollars because we’re in the completely wrong fund. In fact, it’s all about the fund, which will all be explained in part two.

* There are some exemptions to this rule, like if your employer already offers a registered superannuation scheme or through “good faith bargaining”

Keep going!

The New Zealand dollar will help exporters (Image: Getty)

MoneyNovember 6, 2019

Announcing The Spinoff Money

Duncan Greive

Founder

The New Zealand dollar will help exporters (Image: Getty)

After years of trying, The Spinoff today launches Money – its newest section, one aimed at demystifying and making accessible the world of money.

For decades, the relationship between most New Zealanders and money was broadly stable, baked into a set of milestones it was assumed all aspired to and would achieve if they strived. You would leave school, get an apprenticeship or tertiary education, then a steady job with good prospects. Then marriage, a first home, a mortgage, children, all with regular pay increases and career advancements, ending in the security of a generous superannuation and a comfortable retirement. This was obviously a very Pākehā, hetero-normative worldview, but that’s what the government looked like too.

Then, all of a sudden, chaos reigned. The fourth Labour government, big tech, the GFC, student loans, the RMA and a whole lot more caused that safe ideal to shatter. Now we’re in a society which still acts like that linear progression to wealth and security still exists, while providing far fewer of its citizens the ability to achieve it.

Now that progression is broken, what do we have to replace it? That will be the foundation of The Spinoff’s money section – a way of understanding the world of money as it is today, rather than was in generations prior. That means understanding the importance of KiwiSaver, assessing the perils and promise of other investments, eyeing new products as they rise up, from cryptocurrencies to Afterpay, and generally trying to make the world of money far more accessible. Because regardless of how you feel about business or shares, if you have a KiwiSaver account, you’re almost certainly an investor, and it’s in your interest to look out for your future. Whatever your goals are, from starting a business, travelling, effecting social change to buying an apartment, you’ll be better equipped to achieve them if you’re more financially secure.

Crucially, the whole time we’ll do it without relying on prior knowledge. So much contemporary writing about money assumes that A) the world of mortgages and first homes (even property investment) is accessible to all and B) that everyone understands the jargon of finance. This creates a barrier over which only the most committed can climb. The Spinoff Money won’t do that. This is a ride we’ll go on together, explaining what terms mean and where they apply.

We also know that New Zealanders find conversations about money difficult culturally, which is another reason why we think stories read from the privacy of your screen are a very efficient way of conveying information in a way that doesn’t make anyone feel judged for what they do or don’t know. That’s in part why Jihee Junn will run our money section – a young and talented writer who has covered business for some years, yet still feels somewhat at sea about money.

She’ll go on a money journey along with her audience, much as the likes of Frances Cook and Richard Meadows have done before her. She’ll have experts to call on, and editors to check her work. But we think having someone young and from outside finance at the helm will make the coverage much more relatable.

We’ve been wanting to launch this section for years. It’s had a sense of mission about it – listen to ZB or read the business sections of newspapers and they’re full of advice columns and advertising from wealth management firms and their directors. Some of them are fantastic – I’ve read Brian Gaynor’s columns for years, and interviewed him for The Spinoff – but they all seem targeted at a very specific demographic. Put simply: older New Zealanders who already have money.

This seems like the compounding of an existing inequity – not only did many older New Zealanders have certain structural advantages, it feels like money managers are only interested in talking to, educating and having as customers those who are already comfortable. Which makes sense from a business perspective, but leaves further out in the cold those under 50, a large majority of our audience, who could most benefit from having good, smart, jargon-free writing on money.

We also see a huge business opportunity there for a brand that wants to cement a relationship with a generation through the beginning and middle of their working lives, not waiting at the end.

After years of searching, we finally found that partner in Kiwi Wealth. They’re the KiwiSaver provider and wealth management firm owned by the same people as Kiwibank, who’ve sponsored our business coverage for over two years. From our first meetings they felt different to some of the more established players in the sector, who humoured us when we talked about why younger people were a great audience, but didn’t get anywhere. Kiwi Wealth saw that creating financial literacy amongst younger people was a public good that would also be a business benefit for them. Here’s how Joe Bishop, Kiwi Wealth’s GM customer, product and innovation, puts it.

“For many New Zealanders, talking finance can be really intimidating – or just plain boring. As a result, some people know a lot about managing their money, others very little. We want to help fill the gaps and make the subject of financial wellness accessible, even interesting because being savvy about money is an important part of reaching your goals in life.

“Taking the mystery out of things like investing and saving by sharing our knowledge is important to Kiwi Wealth. We see the Spinoff as an important platform to reach and engage with New Zealanders in a way that’s upfront, open and ongoing.”

They’re with us all the way on this. Once a month we’ll work with them on a story we collaboratively commission, and is subject to our normal editorial processes. The rest of the time we’ll write editorial at our own discretion, covering the breadth of what the word money can mean. We hope you’ll enjoy it. If you have any story ideas or feedback, contact jihee@thespinoff.co.nz. We’re looking forward to following the money, together.