KiwiSaver: The five biggest myths

Photo / Thinkstock

Experts look at the top five myths about KiwiSaver

Asked about the KiwiSaver myths he has heard most often, Mercer's NZ managing director Martin Lewington comes up with five off the top of his head.

"Which to me indicates the need for KiwiSaver providers to work even harder at helping their members understand their options," Lewington says.

Here are some of the common misunderstandings:

You have to have a job

"One of the common misconceptions about KiwiSaver we have heard over the years is that you have to be working to join," says Fisher Funds operations manager Vedran Babic.

"That is a myth. One of the great features of KiwiSaver is that it does not discriminate.

"Anyone under 65 can join KiwiSaver - employees, self-employed, stay-at-home mums, beneficiaries, even children - as long as you normally live in New Zealand [or have permanent residency].

"Everyone who joins KiwiSaver receives the $1000 kick-start from the government.

"If you are not working you do not have to contribute but if you can afford to save, for every $1 you contribute the government will contribute [50c] up to $521 per KiwiSaver year."

The government has it

"A large myth is that KiwiSaver is held in a single account by the government and they can access it should they choose," says Milford Asset Management retail product manager Sarah Mitchell.

"In actual fact your KiwiSaver account is your money," she says.

"There are over 100 different KiwiSaver fund choices, operated by fund managers who invest these funds on members' behalf.

"These accounts are held in members' individual names and only that individual member can access their funds [once they reach the qualifying date, or earlier if eligible].

"KiwiSaver schemes also use a trustee and custodian to ensure security of investments.

"Furthermore, KiwiSaver investment funds are audited to ensure the fund manager is reporting an accurate reflection of funds under management and accounts," Mitchell says.

Morningstar's Chris Douglas says he often hears "it's not my money".

"Yes it is. Your KiwiSaver contributions come out of your pay packet and your scheme is governed by an independent trustee," says Douglas "No one can get access to this but you. It's your money - just like your money in a bank.

"It's just that you can't get access to it until you're 65, unless you're using the first-home buyers withdrawal."

You have to get out at 65

"You have to withdraw all your KiwiSaver savings and close your account once you reach retirement age," is another myth, says BNZ head of wealth and private bank Donna Nicolof.

"When you are entitled to access your KiwiSaver savings, you don't have to withdraw all the savings at once.

"Depending on your provider, you may be able to withdraw a lump sum or arrange a regular withdrawal to supplement your income."

Joe Bishop, from Gareth Morgan Investments, says by making regular withdrawals and deposits you can use KiwiSaver as a convenient way to manage your retirement savings.

"If you're still working your employer may even continue to contribute as well, but they don't have to once you become eligible to withdraw. You would also no longer receive member tax credits from the government," Bishop says.

Nicolof says it's a good idea when you're getting close to retirement age to contact your KiwiSaver provider and talk about your options.

It's a savings account

Executive director of the Commission for Financial Literacy and Retirement Income David Kneebone says he often hears that KiwiSaver is a savings account you can withdraw funds from when you need them.

"Unless you're using KiwiSaver for a first home deposit or applying to withdraw under hardship circumstances [neither of which is a guarantee that you can withdraw funds; each scenario has conditions attached] your money will stay invested until 65 years of age.

"If you joined between 60 and 64 you need to leave your money in for five years."

You get the best return in default funds

"Another common myth is that the default funds have been the best-performing options," says Chris Douglas from Morningstar.

"This isn't really true. On a headline return basis, conservative funds have so far been the best performers, but this doesn't tell the whole story.

"Virtually all KiwiSaver investors had only very small amounts invested in the markets during 2008 when growth options were caught up in the heavy sell-off in sharemarkets.

"But investors who stayed the course have done very well.

"They continued to invest into the market - and at the very bottom, too - and as a result, many growth-oriented investors have returned far more than the conservatively-invested.

"This leads me to another potential myth: my conservative fund can't have a negative return. Over shorter time periods such as one year, it sure can," he says.

Disclaimer: Information provided is stated accurately to the best of the respondent's knowledge at the time of publication. It is general in nature and should not be construed, or relied on, as a recommendation to invest in a particular financial product or class of financial product. Readers should seek independent financial advice specific to their situation before making an investment decision.