Does enroling kids in KiwiSaver still make sense?
04 June, 2015
Like you, we were surprised at the Government's decision to discontinue the $1,000 kick-start. It hadn't been signaled and we heard from a lot of people in the days after the Budget saying "darn, I was meaning to sign up, now I've missed out".
In our view, KiwiSaver still remains an attractive, viable and successful retirement savings solution. Yes, the $1,000 kick-start was a nice incentive, but the other benefits of KiwiSaver were always so much more important - like the long-term impact of your ongoing contributions, contributions from your employer and the Government contribution of $521 each and every year.
For kids though, the loss of the $1,000 kick-start makes a big difference. Prior to this law change, the main reason most parents signed their kids up to KiwiSaver was to take advantage of this free $1,000 from the Government.
We've always encouraged parents to get their children into the savings habit early and learn about investments. KiwiSaver was a great way to do this.
Our view now is that people should not sign children up to KiwiSaver.
Without the kick-start incentive, member tax credits or compulsory employer contributions, KiwiSaver no longer makes sense for kids. Here's why:
- KiwiSaver is inflexible compared to other savings options. You can only use it for retirement or to purchase a first home. Other savings products (like managed funds and "online saver" type accounts) can be used for multiple purposes. And if your kids' plans change (which they might!) managed funds can be very flexible.
- KiwiSaver accounts need feeding! Without the $1,000 kick-start, the administration and management fees can mount up and eat into your kids' balance, unless they keep topping it up. Managed funds do not have administration fees like KiwiSaver, so they can still make sense for smaller balances.
If you still want to start up an investment or savings plan for your kids, we can help you through our range of managed funds. You can set up a regular investment from as little as $50 per month or invest a lump sum from $500. If this is something you'd like to explore, please give our team a call and we'll talk you through the options.