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Q&A: KiwiSaver in a time of COVID-19

Ask yourself: Do you know who your KiwiSaver provider is?

Do you know what fund type you are invested in? Do you know what your money is invested in? Do you know what fees you are paying? Do you know how much you are paying into your KiwiSaver account?

For many, the answer is no.

Anna Fox is an KiwiSaver Investment Specialist at Generate KiwiSaver. An accredited QFE Adviser, she is passionate about helping Kiwis make informed choices and maximise the benefits of KiwiSaver.

We asked Anna to answer a few FAQs to find out more about KiwiSaver in a time of COVID-19.

What happened to KiwiSaver balances during COVID-19?

As you know your KiwiSaver is an investment that can go up and down in value, it is not a bank account. You will have a range of investments in your KiwiSaver account that will include low risk ‘income’ assets like cash and fixed interest and higher risk ‘growth’ assets like property, infrastructure and equities. It is normal that the value of these assets goes up and down.

COVID-19 caused nearly all economies in the world to slow down abruptly as we all tried to stop the spread of the virus. This caused the value of most growth assets to go down in price to reflect this slowdown.

When clients invest, they should be choosing a fund that is suitable for them and their situation. Therefore, it is important to get some general advice from someone like myself to help with making informed decisions. During COVID-19 we also saw clients move from more aggressive and growth funds to more lower risk funds like conservative or cash funds, which may not always be the right move.

Conservative funds do have lower volatility than growth funds. This means that they will not go down as much in times of distress but also that they will not go up as much when markets are strong. However, historically growth funds have delivered higher returns than conservative funds over the long term and we certainly expect that to be the case going forward.

Investors may lose value if they shift to a conservative fund after the market has already dropped and do not move back to a growth fund before the market recovers. In doing this investors risk locking-in the larger drop in value from a growth fund and experiencing a reduced recovery by being in a conservative fund. It is important to remember your fund type should reflect your goals and investment timeframes.

This was also highlighted by Gillian Boyes, Investor Capability Manager from the Financial Markets Authority when they saw a real shift in investors moving from the more aggressive and growth fund types to conservative or cash funds. You can read more on this here.

When I meet with clients, I can offer a tool to help determine a fund choice that is suitable for a person in their position.  I can also provide in depth information and advice on the benefits of KiwiSaver, and the different fund types that Generate can offer.

What if I no longer have a job?

If you are no longer working you will not have to contribute to KiwiSaver.  However, if you are in a position to contribute while you look for employment you can do manual contributions. This can be a regular payment from your bank account i.e. automatic payments, bill payments or you can set up a direct debit.

Remember you will still be eligible for the full Government Contribution of $521.43 if you contribute $1042.86 between 01 July and 30th June, each year.

If you are unable to contribute that much you can still receive 50c for every dollar that you do contribute. You are generally eligible for the Government Contribution if you:

  • are aged 18 to 64 (or older if you are not eligible for a retirement withdrawal).
  • contribute to your KiwiSaver account; and
  • mainly live in New Zealand.

If you have only just joined KiwiSaver (any KiwiSaver scheme, not just Generate) within the year to 30 June, the Government will contribute a pro-rata amount based on the number of days you have been in KiwiSaver. If you turn 18 during the year to 30 June, you are eligible for the number of days you were 18 during the year. If you turn 65-part way through the year to 30 June, you are eligible for the number of days you were under 65 during the year.

However, if you are over 65 you may still be eligible if you joined before turning 65 and have not been in KiwiSaver for five years. You must also have joined KiwiSaver before 1 July 2019 and not made any retirement withdrawals.

You may have considered withdrawing some of your KiwiSaver funds through a significant hardship application. The Financial Markets Authority has provided guidance around COVID-19 and KiwiSaver significant financial hardship applications.

While you may qualify for a withdrawal, taking that money now could severely impact your quality of life in retirement. The FMA urge you to consider the Government COVID-19 support package, which at 2 April includes:

  • leave and self-isolation support.
  • wage subsidy scheme.
  • mortgage holiday and business finance support schemes.
  • business cash flow and tax measures; and
  • wider $12.1 billion package – support for Māori communities and businesses

If you have lost your job, cannot work at the moment or your income has been reduced, you may qualify for a benefit or other financial help from Work and Income. If you are struggling to meet your living costs or had an unexpected bill, they might be able to help even if you are employed. Even if you do not think you qualify, you should contact Work and Income to talk about your situation. Visit the Work and Income website for more information.

This guidance and information can be found here.

However, if you decide to proceed with the significant hardship application, you need to provide evidence you are suffering significant financial hardship.  For example, when you:

  • cannot meet minimum living expenses.
  • cannot pay the mortgage on the home you live in, and your mortgage provider is enforcing the mortgage.
  • need to modify your home to meet your special needs or those of a dependent family member.
  • need to pay for medical treatment for yourself or a dependent family member.
  • have a serious illness; or
  • need to pay funeral costs of a dependent family member.

You will need to contact your KiwiSaver provider and apply to them directly.

Savings suspension

If you are still employed, you can apply for a temporary break from making contributions into your KiwiSaver account. This is called a ‘savings suspension’.  You can apply for this via logging into your MyIRD.

If you have been a member of KiwiSaver for one year or more, you do not need to give a reason for wanting a savings suspension. If it is an early request, we need evidence of financial hardship.

While you are on a savings suspension it is important to note that your employer will not be required to make contribution and you will also be ineligible for the Government contributions.

If you can make it through without taking a savings suspension or applying for hardship, then you may be a lot better off in the future.  These options should only be considered after exhausting all other avenues.

What about employers? What if they have staff but making their KiwiSaver payments are causing financial strain?

You must make a compulsory employer contribution to your employee’s chosen KiwiSaver scheme.  You do this each time you pay them salary or wages.

Can clients change providers at this time?

Yes, they can.  Clients can change providers at any time.  You are not locked into a provider for any set period of time. However, it is best to check whether your Scheme has any exit fees.

In the past few months, I have seen a huge spike in clients now reaching out and booking appointments to get advice on KiwiSaver and the Generate KiwiSaver Scheme. Some have also moved to Generate.

Clients are looking for a New Zealand owned and operated, high performing top-quality provider who offers quality service.  At Generate we are a specialist investment company who focus on growing client’s savings to help them achieve their goals.

To find out more you can contact Anna on 021 472 744 or email anna.fox@generatekiwisaver.co.nz to arrange an appointment. Anna can provide quality advice on KiwiSaver and the Generate KiwiSaver Scheme at no cost and no obligation.  

Generate Investment Management Limited is the issuer of the Generate KiwiSaver Scheme and Generate Unit Trust Scheme. The PDS’ and QFE disclosure statement is available at www.generatewealth.co.nz


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