Knowledge around KiwiSaver limited in ethnic-migrant communities

The latest ASB KiwiSaver survey released on Monday, December 10, brings to fore a fact - widely believed to be the case for ethnic migrant communities - that the knowledge around KiwiSaver is - limited.

The survey reveals that the puzzle around the role of KiwiSaver in retirement planning is at best at varying levels amongst New Zealanders.

With about 40 per cent of respondents plan to use KiwiSaver to cover day to day expenses and provide income within retirement, and 11 per cent plan on leaving the money in KiwiSaver once retired. Another 11 per cent of people plan to use KiwiSaver to pay off mortgages or other debt. Splitting into deciles, 46 per cent of people aged 30-40 and 54 per cent aged 40-49 plan on using KiwiSaver to fund day-to-day expenses.

The survey also reveals uncertainty about how much saving would be required each year in retirement, with 20 per cent of respondents think that the amount required per year is under $30,000 while another 31 per cent think a figure between $30,000 and $50,000 each year will be needed.

While the most prevalent lack of knowledge emerging in this latest ASB survey is around the role of KiwiSaver in retirement planning, the lack of knowledge around KiwiSaver within ethnic migrant communities, including the Kiwi-Indian community is stark.

Essentially, KiwiSaver is a government money saving initiative to develop long-term money-saving habits among participants. However, money can be used for a first home or in cases of financial hardship along with retirement.

However, not everyone is equally aware of it.

Anurag Kashyap, 33-year-old sales professional, who had recently purchased the first home in West Auckland came up impromptu with a response on KiwiSaver, “I don’t think there was any benefit of KiwiSaver for first home buyers in Auckland housing market, given the prices of houses are higher than the national average.”

Mr Kashyap got it confused with Kiwisaver Homestart Grant – a grant given by Housing New Zealand to an eligible KiwiSaver member, who has been contributing to it at least for three years, for assisting in first-home-buying.

What is KiwiSaver?

KiwiSaver is a voluntary, work-based savings initiative, augmented with government contributions, which offers a wide range of membership benefits.

Broadly, KiwiSaver savings are made up of an individual’s contributions to the account, employer’s and government’s contribution, plus or minus investment returns and minus any withdrawals, fees and taxes.

The money is not kept with government or banks or employer, rather it is placed with government approved KiwiSaver providers (though KiwiSaver is not guaranteed by the Government), which is further invested based on individual’s preferences.

Once someone chooses to join, contributions are deducted from their pay at the rate of either 3 per cent, 4 per cent or 8 per cent (you choose the rate) and invested in a KiwiSaver scheme.

Self-employed people can also join KiwiSaver by contacting their KiwiSaver provider and informing how much you want to contribute and make payments directly to them.

Who can join KiwiSaver?

New Zealanders - citizens, or those who are entitled to live in New Zealand permanently (residence visa) - under the age of 65 can join KiwiSaver.

Those on temporary visas, student and work visas are not eligible to become a member of KiwiSaver.

When can you get your money back?

The overall objective of KiwiSaver is to help people in long-term saving habits and plan their life after retirement. KiwiSaver savings will generally be locked in until one is eligible for NZ Super (currently 65), or had been a member for at least five years (if you joined over the age of 60).

However, members can also withdraw their money for a few more critical phases in their lives, particularly buying a first home, moving overseas permanently, suffering significant financial hardship and being seriously ill.

How does it help in first-home-buying?

From a perspective of the ethnic migrant communities, including Kiwi-Indian, probably one of the most well-known benefits of KiwiSaver is the assistance it provides building corpus towards first-home-buying.

A KiwiSaver member for three or more years is eligible to withdraw money to purchase their first home (not an investment property).

Dev Dhingra, of Fund Master – Mortgage and Insurance Advisers told the Indian Weekender, “It would be fair to say that within our Kiwi-Indian community, the awareness about KiwiSaver is related more with the desire to buy first-home rather than long-term planning for retirement.”

“We meet several clients who are at different levels of awareness with regards to KiwiSaver when they start looking for first home buying.

“A person with an average annual income of $48,000 can end up saving roughly around $3000 every year with minimum 3 per cent contribution from their employer. When you take for three years, and if they are a working couple with a partner in more or less same earnings, then they can save much money towards their first home,” Mr Dhingra said.

KiwiSaver HomeStart grant

Once you have contributed to KiwiSaver for a minimum of three years, then apart from the ability to withdraw money towards first home, they are also eligible to meet Housing New Zealand’s, HomeStart Grant.

The grant can vary depending upon different eligibility criterion.

When purchasing an existing/older home, the HomeStart grant is $1,000 for each year of contribution to the scheme. It means those contributing for three years can get a maximum of $3000 and for those contributing five years can get a maximum of $5000.