Needle on KiwiSaver Amidst COVID Crisis

  • Apr 10, 2020 NZST
  • Team Kalkine
Needle on KiwiSaver Amidst COVID Crisis

The volatility in the stock markets is inevitable, and investors are bound to feel the heat. The recent phase of the equity markets across the globe has been brutal, as trillions of dollars have been swiped away from the markets. Stocks plunged to fresh lows and markets signalled an entry into the bearish zone.

But why did all this happen? The answer is the “Covid-19 pandemic.” The fears impacted the sentiments of investors. If health experts, advisors, authorities and governments are to be believed, the covid-19 situation is here to stay for a while.

The covid-19 situation is already weighing heavy on the economies worldwide. The financial burden over businesses has multiplied, and the same is shared by the individuals.

Watching your hard-earned money vanish away in the blink of an eye is one of the hardest times for the investors currently prevailing. Markets, economies, businesses, as well as individuals, are struggling to keep up with the liquidity requirements on a daily basis.

Governments and concerned authorities have announced several stimulus packages concerning various areas of financial nature. Yet individuals remain in an uncertain zone to tackle the challenges arising from the covid-19 due to the persistent volatility in the markets and a disruption in normal life.

These challenges not only include issues related to employment, liquidity, etc. but also include plans for retirement as well as savings made by the investors who are nearing retirement.

So, where do the investors head to amidst such unprecedented times? It is quite organic for an investor to give up on their retirement schemes seeing the losses or lesser value than what was planned. Moreover, putting a full stop on funding your retirement savings and allocating the same into a regular savings account might also look enticing for the investor.

But how does one decide upon anything regarding the retirement schemes during uncertain times of covid-19?

In New Zealand, one can opt for KiwiSaver, a voluntary savings scheme for your retirement and prepare oneself for the future, where a majority of the members are likely to build up their savings through regular payments from their compensation.

The benefits from the KiwiSaver include contributions from an individual’s employer as well as the government, where the government shall contribute up to $521.43 each year if an individual makes a contribution to a KiwiSaver.

KiwiSaver also assists the individuals to buy their first home if he/she has been in KiwiSaver for at least three years before he/she makes a withdrawal of funds for his/her first home. Moreover, an individual can obtain up to $10,000 for buying his/her first home using the KiwiSaver HomeStart grant, conditional to buying an existing home or a new build.

During current times of covid-19 pandemic, the individuals might look for entering into fresh savings schemes as well as alter the existing one. KiwiSaver allows individuals to effectively manage their funds and individuals can resort to any of these options, given the liquidity and financial crunch during the covid-19.

 

Withdrawing Your Funds

Amidst the covid-19 crisis, individuals who want to withdraw a part of funds from their KiwiSaver funds, are required to submit a proof that validates current financial hardship of the individual. Upon acceptance of the application, an individual can withdraw his/her own contribution as well as the contribution made by their employer.

Changing the Rate of Contribution

Moreover, individuals can make changes to the amount that he/she contributes to KiwiSaver fund by discussing with one’s employer and can choose to contribute 3%, 4%, 6%, 8% or 10% of his/her own pay.

The rate of contribution can be changed once every three months unless otherwise agreed by the employer for a shorter timeframe. If he/she is not an employee, the contribution to be paid shall be mentioned in the contract that he/she has with KiwiSaver provider.

An individual can also choose to temporarily stop making contributions to the KiwiSaver by taking a savings suspension if there has been a change of circumstances.

Taking a Pause from Savings

The person who has been in KiwiSaver for a year or more:

  • Can have a savings suspension for three months to 1 year
  • Is not entitled to receive employer’s contributions unless otherwise stated in the employment agreement

The person who has been in KiwiSaver for less than a year

  • Can apply for an early savings suspension, if he/she is experiencing, or is likely to experience financial hardship
  • Will be required to produce proof of financial hardship for reasons beyond his/her control
  • Can bear the rejection of the application if financial circumstances have changed for reasons within one’s control

Upcoming Changes

A number of changes are expected to be made to the KiwiSaver in order to make the experience smoother for the people in managing their KiwiSaver account. These changes were subject to the legislation that was anticipated to pass in March, and the changes were expected to be brought into effect from mid of April 2020. The likely changes include the following:

  • Increased convenience in checking contributions made by the individual, employer as well as government.
  • Improved transfers to KiwiSaver providers to make a quick and more accurate transfer of his/her contributions
  • Alterations to the prescribed investor rate (PIR) to ensure that the right amount of tax is paid.

Bottomline

The current times of increasing uncertainties are a matter of great concern for the investors, especially the people who are nearing their retirements. Losing a significant wealth amidst the recent market crash has jolted the confidence. However, seeing the need of the hour, KiwiSaver offers some significant relaxations to the New Zealanders in maintaining their funds.

   
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