The Future of KiwiSaver: Trends and Predictions
Understanding the Current Landscape
KiwiSaver, New Zealand’s voluntary retirement savings scheme, has seen significant growth since its inception in 2007. Recent surveys by RNZ reveal that some members have accumulated balances exceeding $2 million, with the largest balance likely hovering just under $3 million. This highlights the potential for substantial savings within the scheme, especially for those who contribute consistently and strategically.
Factors Driving Large Balances
Several factors contribute to the impressive balances seen in some KiwiSaver accounts. Large, one-off contributions and transfers from Australian super savings are common among high-balance holders. For instance, Fisher Funds and KiwiWrap both reported members with balances above $2.6 million. Scott Alman, managing director of KiwiWrap, attributes these large sums to significant contributions and strategic planning.
The Role of Contribution and Investment Strategy
Consistent and substantial contributions are key to building a large KiwiSaver balance. If someone aimed to save $3 million from scratch in the 18 years KiwiSaver has been operating, they would need to save approximately $5,000 a month with a 10% return. This underscores the importance of regular, significant contributions.
The Impact of Investment Choices
Being in the right fund for one’s life stage and regularly reviewing settings and performance are crucial. Ana-Marie Lockyer, chief executive of Pie Funds, notes that a hypothetical balance of $2 million today could grow to $10.1 million or $7.5 million (inflation-adjusted) with continued contributions and a modest 15-year time horizon.
Policy Changes and Future Directions
Ana-Marie Lockyer applauds Nicola Willis for her efforts to consider changes in contribution settings. She emphasizes the need for broader policy changes to help New Zealanders achieve bigger balances. This includes understanding the impact of such changes on employers, employees, and households, and staggering the inevitable adjustments over time.
Tax Benefits for High-Balance Holders
People with large KiwiSaver balances benefit from the Portfolio Investment Entity (PIE) tax regime, which caps tax at 28% rather than the 39% PAYE maximum rate. This tax advantage can significantly boost savings over time.
Age and Savings: A Disparity
While about 370 people under 25 have balances exceeding $80,000, more than 38,000 people aged 61 to 65 have less than $10,000 in their KiwiSaver accounts. This disparity highlights the need for early and consistent savings strategies.
Pro Tips for Maximizing KiwiSaver Savings
1. Start Early: The earlier you start contributing, the more time your money has to grow.
2. Contribute Regularly: Consistent contributions, even small ones, can add up significantly over time.
3. Choose the Right Fund: Ensure your investment choices align with your life stage and risk tolerance.
4. Review Regularly: Regularly check your settings and performance to make necessary adjustments.
Did You Know?
Did you know that KiwiSaver members can withdraw their savings to buy their first home? This feature makes KiwiSaver not just a retirement savings tool but also a pathway to homeownership.
FAQ Section
What is the average KiwiSaver balance?
The average KiwiSaver balance varies by provider. For example, KiwiWrap has an average balance of $173,300, while the overall average for all schemes is around $33,500.
How can I maximize my KiwiSaver savings?
To maximize your KiwiSaver savings, start contributing early, choose the right fund for your life stage, make regular contributions, and review your settings and performance regularly.
What are the tax benefits of a high KiwiSaver balance?
High KiwiSaver balances benefit from the PIE tax regime, which caps tax at 28% rather than the 39% PAYE maximum rate.
How does KiwiSaver help with homeownership?
KiwiSaver members can withdraw their savings to buy their first home, making it a valuable tool for both retirement savings and homeownership.
What are the future trends in KiwiSaver?
Future trends in KiwiSaver include potential policy changes to contribution settings, a focus on early and consistent savings, and the continued importance of strategic investment choices.
Call to Action
Are you on track to maximize your KiwiSaver savings? Share your strategies and tips in the comments below, or explore more articles on financial planning and investment strategies. Don’t forget to subscribe to our newsletter for the latest insights and updates on KiwiSaver and other financial topics.