2020 has been a harrowing year for us all—not least for our KiwiSaver balances! Fortunately, there are two new developments in the KiwiSaver space this year that make the scheme more user friendly. Elizabeth explains.
The first of those KiwiSaver developments is the decision by the IRD to refund members who have mistakenly been overpaying tax on their KiwiSaver. Your PIR rate (10.5%, 17.5% or 28%) determines the level you are taxed for investment returns, and any new members who didn’t select the correct rate will have been put by default at 28%.
In all previous years, if you had underpaid on your PIE tax, the IRD would present you with a bill, however, if you had overpaid there were no refunds. As of 1 April 2020, this has been amended. So, not only does the IRD have a greater ability to identify that you are on the wrong rate and notify your KiwiSaver provider, but if you do overpay you will now be able to claim a refund just as you would with income tax.
The second development was the compulsory inclusion of projections into your annual KiwiSaver statement. These are designed to give members a better idea of how they are tracking for retirement. This development was prompted by the findings that most New Zealanders are not financially set up for retirement and suffer financial stress as a result.
It’s important to note that while the projections are an excellent development in making KiwiSaver more relevant and tangible, particularly for young people who may not be thinking of retirement yet, they are constrained by the guidelines set out. These include the guideline that all providers must use the same underlying assumptions in their projections in order to compare apples with apples—when in fact your true projection will vary depending on the provider and fund chosen. The assumptions are also conservative (to ensure members over, rather than under, prepare) and so won’t hold true for many people.
For example, the projections assume an increase in income of 3.5% each year, no contribution holidays or first-home withdrawals, and a top tax rate of 28%, amongst other factors.
This highlights the value of speaking with a financial adviser, even about something as seemingly simple as KiwiSaver, in order to get a true idea of where you might be at age 65 and what you need to do now to get on the right path.
It’s never too late to take a step in the right direction. So, regardless of where you are on your KiwiSaver trajectory, take a moment to review it, get some advice and course correct towards the financial future you really want.
Elizabeth Tsikanvski is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.