The Government has been trying to increase New Zealander's saving rates for some time.
Successive retirement commissioners have been warning for years about savings shortfalls in retirement. The message was highlighted again last week by the Massey University Fin-Ed Centre.
Their research findings, reported by the NZ Herald, once again underscored that for all but the most thrifty folks living in the provinces, NZ Super was not nearly enough for a comfortable retirement.
Depending on where you lived in the country, and the kind of lifestyle you wanted, Massey's research found that you'd need anywhere between $263,000 and $785,000 as a lump sum at 65 to bridge the difference between what you could expect from the NZ Super and what you actually might need.
For single households, the range was $193k and $774k, depending on where you chose to live and what kind of a lifestyle you desired. All estimates assume these targeted savings amounts excluded mortgage or rents, another financial concern that faces many heading into retirement.
The repeated message to Kiwi savers is to take a greater interest in and understanding of your savings plan and figure out if you're on track to have enough.
Until today, KiwiSaver members have had the option of paying 3%,4% or 8% of their salary into their accounts. Effective April 1st, two additional rates (6% and 10%) have been added to encourage a higher rate of saving.
Employers are only required to contribute 3% and the minimum mandatory for wage and salary earners will remain at 3% gross salary.
Among other changes coming into effect are a cap on 'contribution holidays' which will now be referred to as a "savings suspension." Previously you could take a 'holiday' from KiwiSaver for up to five years at a time. Now, the exemption period is for one year, with the ability to reapply each year for up to five. The aim is to prevent people from slipping intentionally (or unintentionally) into a costly break from KiwiSaver.
Assuming a modest rate of return, someone on an average salary of $50,000 a year, taking a 'holiday' for five years, could wind up costing themselves around $18,000 in reduced savings over that time. When you take into account the skipped contributions from your pay pack, your employer's portion and the missed member tax credits PLUS the expected returns, it takes a little shine of that holiday.
Another notable change for members that kicks in April 1st is a renaming of the "member tax credit" to Government contribution. With more than one million members failing to take advantage of the maximum entitlement of $521, Government is hoping a name change could be more conducive to people taking advantage of the facility.
Remember that for every $1 you contribute, the Government will match that by .50C up to a maximum of $521. To be eligible you'll need to be in KiwiSaver for a minimum of 12 months but if you're under that you'll still receive partial credits.
Importantly, you'll need to do this before the cut off of June 30th as the calendar cut off by the IRD is July 1st. Remember to make your contributions well before June 30th to allow for bank processing times.