The Investor: Kiwisaver's Flexibility is a plus – up to a Point

Several of his clients had withdrawn money from their KiwiSaver accounts, under the financial hardship provisions, when the earthquakes and associated job losses and expenses had left them struggling.

Sometimes, the adviser said, all it took was a few hundred or a thousand dollars to tide them over. They didn’t have to take drastic measures such as selling a property in a hurry or reluctantly moving elsewhere because of better job prospects.

The recently released KiwiSaver Report from the Financial Market Authority says that nearly $29 million was withdrawn from the scheme last year by people in financial hardship – include many in Christchurch.

It’s good to know the possibility is there. As the adviser observed, many of the people who made withdrawals probably wouldn’t have had savings if they weren’t in KiwiSaver.

The flexibility of the scheme is also apparent in the number of members who have stopped contributing.

According to the KiwiSaver Report, a full 45 per cent – about 858,000 members at March 31 - were non-contributors. These are made up of employees who didn’t contribute in February or March, and non-employees - including the self-employed – who didn’t contribute at all in the year ending March 31.

A fair chunk of these will be under 18s – of whom there are 312,000. Many of their parents have signed them up to get the $1000 kick-start, but make no contributions because children don’t receive annual tax credits.

Then there are 67,000 employees on contributions holidays – probably because they think they can no longer afford to contribute.

But what about the rest – approximately a quarter of all members? Presumably they include:

• Unemployed people or those who have stopped work, perhaps to care for babies or to retire.

• The self-employed who feel they can’t afford to contribute or haven’t got around to it.

• People who have moved overseas.

It’s good that people have the option to turn off the KiwiSaver tap. And those pushing for compulsory KiwiSaver might take note of the large numbers of non-contributors. Clearly, many people appreciate the flexibility.

Nonetheless, I wonder if some people have really thought through their decision to stop contributing.

In April, May or June each year, many KiwiSaver providers write to members who don’t look likely to contribute at least $1043 by June 30. They suggest the members might like to boost their deposits to that level, so they will receive the maximum $521 tax credit.

That’s a good service, a sign that the provider is taking an interest in its members. But I suspect a lot of people respond that they can’t afford to pay a lump sum.

If that’s you, I suggest you consider setting up a regular transfer from your bank to your provider thoughout the year, so the amount is relatively minor.

If you’re contributing nothing, a regular deposit of $20 a week or $87 a month will get you the full tax credit. If that’s too much, halve it. At least you’ll then get half the credit.

Through the tax credit, every dollar you contribute up to $1043 is boosted by 50 cents. That means that if your retirement savings would otherwise have been $20,000, it will be $30,000.

If you’re an employee, and therefore also getting employer contributions, KiwiSaver is better still.

It’s powerful stuff. And the very people who feel they can’t afford KiwiSaver are probably the ones who could most benefit.