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07 Jun 2016

How to avoid cracking your KiwiSaver nest egg

KiwiSaver has become very popular. Since it began 2.6 million New Zealanders have joined the scheme and there is now $32 billion in savings. Impressively, the average account balance has increased to $11,265 in 2015 from $5,373 in 2011 - an increase of 110% with such growth KiwiSaver will become the biggest asset outside of the family home for many New Zealanders.

However, the brutal reality is KiwiSaver is not a priority. Our ‘she’ll be right mate’ mentality is pervasive and troubling when it comes to the way we plan our financial futures. Our lax attitude is well known when it comes to crucial KiwiSaver considerations such as our contribution rates or choosing an investment strategy. What is less discussed, however, is the failure of many to protect their KiwiSaver nest egg upon death.

Estate planning is somewhat of an enigma in our retirement planning habits. Death is not something we think about so we do not plan for it. Since 2008 14,750 KiwiSaver accounts have been closed because of death.

What happens to KiwiSaver when you die?

It depends on whether you have a Will and the size of your account balance.

If you have a Will the process is straightforward. To release the funds the deceased’s personal representative or executor will have to complete a relevant form from the KiwiSaver provider and a certified copy of the Will and or probate.

If you do not have Will that is when it gets complicated and potentially ugly.

  • If a KiwiSaver account balance is less than $15,000 an authorised relevant person such as a spouse or partner can simply out a form from the provider to get the funds transferred into their bank account.
  • If an account balance is greater than $15,000 a letter of administration is needed from the High Court for the funds to be released. This arduous process is expensive and can take several months. Importantly the account balance and other assets will be distributed according to Government legislation, not necessarily your wishes. Under the worst case scenario, your hard-earned KiwiSaver could end up going to relatives you dislike at the expense of others. This could sow the seeds for a family feud or an expensive and exhausting legal battle. At best you are making it hard for your loved ones at what is likely to be the worst time of their lives.

KiwiSaver grows your wealth, a Will protects it

Planning your KiwiSaver nest egg should not be just about setting your retirement goals, making the right investment choices and reviewing your strategy. On the checklist of things to do should be ‘an up-to-date Will’. A Will gives direction as to who receives your retirement savings and other assets and as a result protests your best wishes.

Drafting and updating a Will may not be something we want to do but to ignore an estate planning basic maybe even more painful.

We perhaps need to learn from the Australian experience where in 2015 28.7% of the complaints before the Australian Superannuation Complaints tribunal were related to death benefits. This is a clear indication of the pain that can occur by poor estate and investment planning.

Unfortunately, the signs are that we may be committing similar mistakes to our Australian neighbours. Recent surveys show that 52% of people in KiwiSaver have no idea what they’d do with their KiwiSaver money once they reached 65 and 14% don’t know who their KiwiSaver provider is with – a figure that increases to 38% for the under 25s.

For more information on making your Will so you can protect your retirement savings and other assets please contact us on 0800 87 87 82 or email info@pgtrust.co.nz.

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Perpetual Guardian is a trading name of The New Zealand Guardian Trust Company Limited and Perpetual Trust Limited. For Authorised Financial Advisers, a disclosure statement is available upon request and free of charge.