The challenge of imagining your children's retirement

Why enrolling your kids in KiwiSaver could be a good idea, plus how it actually works for the young ones.

A conversation that opens like this is always going to be challenging: "Okay kids. Today we're going to talk about your retirement." The children must then grapple with the abstract nature of such adult concerns. The adults are faced with imagining their own children in retirement - and where they as parents might fit into that scenario.

I am thirty years older than my three-year-old son. He recently asked me, "Dad, when I'm 70, how old will you be?" "Um, well... if I'm being optimistic, I'll be 100. And living in your shed." So then: Who's going to pay for that shed?

Enrolling your kids in KiwiSaver requires some foresight on your part - but it sets them up to look after their future selves long after you may be able to.

Retirement is a long way off for your kids, but buying a first home isn't

KiwiSaver is a lifelong commitment - your kids won't be able to opt out, or use the funds to pay for their education. But what they will be able to do (providing they're eligible) is withdraw most of the KiwiSaver funds they've accumulated so far when they want to buy their first home. The earlier they start with KiwiSaver, the closer they'll be to a decent amount to help with this purchase.

Developing good financial habits

Contributing to KiwiSaver and watching their balance change over time can give kids a bit of practical experience with saving and investing. It also encourages restraint by default, since they can't touch a cent of it.

How contributions work for kids with a KiwiSaver account

Your child doesn't have to be in gainful employment to grow their KiwiSaver balance. Parents or grandparents can make voluntary contributions while the kids are busy just being kids.

Once your child has a job they'll have to start making contributions to their KiwiSaver account, at 3%, 4% or 8% of their pay. They can take a contributions holiday after 12 months if they want, and even extend that holiday up to 5 years until they're earning more dosh.

Until your child is 18 they're not eligible for the government member tax credits, and employers don't have to make any contributions - unless they're really lovely and decide to anyway.

Signing up your kids is pretty straightforward

Your child will need their own IRD number. Once that's sorted, you just have to contact the KiwiSaver provider of your choice directly.

If your child is under 16, all legal guardians must sign the application form on their behalf. If your child is 16 or 17, only one legal guardian is required to sign the application form, along with the child.

The $1,000 carrot is out, but that shouldn't change anything in the long-term

As of May 2015, new members will no longer receive the $1,000 kick-start from the government when they enrol with KiwiSaver. This used to be a big motivator for parents to get their kids started, but hopefully by the time your kids retire they'll be rolling in enough dough that this vegetable from their past will seem insignificant.

So what's right for us?

No-one can tell you what's right for you and your kids, but a careful weighing up of the pros and cons can help get your kids on a solid path that will serve them well into the future.


More information
Check out more info on the KiwiSaver page on the Kiwibank website


Information contained in this article is correct at the date of publishing and is intended as general information only. This article does not take into account your financial situation and goals and is not personal advice. For advice about your particular circumstances, please contact an authorised financial adviser.

Richard Allardice is a writer and former professional explainer (school teacher) working at Springload. He's been involved with banks his whole life, because that's where he keeps his cash. Read more of his work.