In our last column, we discussed that KiwiSaver is real money and it’s your money.
That line on your pay slip belongs to you and the decisions you make today can make a big difference to the amount you have available in the future. But what if you are already over 65?
While KiwiSaver has always been positioned as a retirement savings product, changing work patterns, increased longevity, and legislative changes mean that KiwiSaver may represent an opportunity to continue saving and investing after 65.
Overlay this with the low interest rate environment investors find themselves in and you can see why alternatives to bank term deposits may be sought.
A KiwiSaver account offers someone aged 65 or over access to professional funds management and a range of funds allowing diversification across asset classes — for example cash, domestic and international fixed interest, domestic and international equities and listed property.
Such diversification may enhance overall investment performance based on the relative performance of each asset class. While it is tempting to simply compare the reinvestment rate being offered on your bank term deposit to what you see on a KiwiSaver performance table, it is important to remember that they are different types of investments, with different levels of investment risk.
Unlike a bank term deposit, a KiwiSaver account does not have a specified rate of return and there is no set timeframe for which you must invest. Instead, your return will vary based on the market movements of the assets held by the fund in which you choose to invest.
Selecting a fund which meets both your timeframe for investing and risk appetite is important and advice from a financial adviser is useful.
You might like to consider the risk indicator for the KiwiSaver fund.
The risk indicator is rated from 1 (low) to 7 (high). The rating reflects how much the value of the funds assets may go up and down (volatility).
A higher risk indicator generally means higher potential returns over time, but more ups and down along the way.
Fees are also a consideration. When using the services of a professional fund manager, a fee will be charged.
Normally fees are expressed as a percentage per annum of the value of your investment. It is common for a monthly account fee to also be charged. This information on fees should be readily accessible on a KiwiSaver provider’s website.
At law, the KiwiSaver scheme rules prescribe that KiwiSaver fees must not be unreasonable. There is a high degree of interest in fees given more than three million New Zealanders are in KiwiSaver.
Performance information across a range of time periods should also be readily accessible on the provider’s website. Look out for the prescribed investor rate (PIR) applicable to your circumstances and check to see if the return quoted is after fees and tax.
Another consideration for KiwiSaver members aged 65 or over will be how easy it is to access your money. You should anticipate completing a form for the first withdrawal which may involve a statutory declaration, but check with the provider about how regular withdrawals can be made and what will be required to implement this.
For many people, turning 65 does not mean ceasing work and if this applies to you, you can still make contributions from your salary and wages to your KiwiSaver account, but your employer is generally not obligated to make employer contributions, although they may voluntarily do so. Generally access to Government contributions will stop on reaching 65 (an exception applies for those under 65 who joined before July 1, 2019, and who have not opted out of the five-year lock-in period).
Finally, if KiwiSaver is new to you and you are uncertain about where to invest your life savings, talk to your financial adviser about how your KiwiSaver money is held.
KiwiSaver is a regulated financial product and each provider has a supervisor checking that the manager of the scheme is performing their duties. Just as you would expect when it’s real money and it’s your money.
- Trish Oakley is head of Summer (Forsyth Barr’s KiwiSaver scheme). This is not a recommendation to buy or sell any financial product and does not take your personal circumstances into account.
