Like everyone in NZ, I've got the option of joining Kiwisaver this year. I guess it's a sign of age that I'm actually interested in it.
I've just had a look at the terms - which, on most of the information sites, have been subject to a degree of inaccurate precis.
They basically amount to:
- An initial $1,000 kickstart
- A tax credit of $1,043 or the amount you contributed in a year, whichever is lower
- An employer contribution of 1% in 2008/09 rising to 4% in 2011/12
In return for this, you lock your money up until age 65.
What isn't in the scheme (and *is* in a UK personal pension, for instance):
- tax relief on contributions (apart from the capped tax credit). Your contributions come out of *taxed* pay
- tax relief on fund growth. The fund providers are taxed at 30% (you don't see this tax bill - it just reduces your fund growth)
Of course, the Brits pay quite a lot more tax than we do and they can only take 25% of their fund out as a lump sum.
I've made this calculator to see what the tangible benefits of the scheme are. It compares, based on age and salary, the effect of putting 4%/8% of salary into Kiwisaver against putting the money into a fund directly (and thus having it immediately accessible). Note that due to GoogleDoc limitations, to change values you'll have to export it into Excel or your own document if you want to change any values.
For the first 4% of salary, you always win. The size of the win tapers off as you earn more (and the younger you are) but you always get a reasonable (8% rather than 4%) benefit from locking your money up in Kiwisaver.
For the next 4% (i.e. making an 8% contribution) you *never* win in cash terms, unless you earn less than $27k. Locking up an extra 4% of income gives those earning more than this zero benefit.
(Of course, you might regard having the money locked away and unavailable to spend as a benefit - then again, if you wind up short of cash and needing to borrow at any stage, it's a big negative).
So I'm going to do 4%, but I can see no reason at all to go beyond this.