KiwiSaver: Would you like an extra 50% ROI?

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By Simon O’Neill

 

The end of the KiwiSaver year is fast approaching, which means the government paying out member tax credits. Make sure you get yours.

 

If past years are any guide, 76% of Kiwis will get their KiwiSaver government contribution (member tax credits). You’re one of them, right?

This means that one-in-four of us are missing out on receiving an extra 50 cents to every dollar they contribute to their KiwiSaver (up to a maximum of $521.43). The lost credits all add up to more than $300 million dollars being left on the table every year by people who either contribute nothing or just a small amount.

The KiwiSaver calendar year runs from 1 July to 30 June, with member tax credits paid to your KiwiSaver account every 1 July. So, with just a few weeks to top up your annual account in order to make sure you’re one of the 76%, here’s the full break down on KiwiSaver member tax credits.

 

Have I done enough?

If you earn at least $35,000 and have been contributing the minimum 3%, you’re fine. You don’t need to do anything—you’re in the 76%.


If you’ve earned less than $35,000, you’ll need to top this up to get the full $521.43.


You’ll need to do this (really) soon. If you’re not 100% sure, call your provider. If you’re not sure who your provider is, you can find out through myIR account (IRD link below)

 

A quick thanks to your boss as well who will have been contributing 3% alongside your contributions (assuming, of course, you haven’t opted out).
 

Self-employed or unemployed?

If you’re self-employed or unemployed, things are a little different. If either is the case, it falls to you to make voluntary contributions. You can pay as much or as little as you like.

 

Like everyone else, you’re also eligible for the 50% return on your investment to a maximum $521.43. To receive this, you need to contribute an annual total of $1,042.83. If you don’t quite get to that amount, you still get 50 cents to the dollar up to $521.43.


So, if you contribute $500 within the KiwiSaver calendar year, you’ll still an extra $250 from the government (an extra 50% return).

 

Taking a contribution holiday

If you are employed and you do not want to continue contributions to your KiwiSaver account, you may be able to go on a contributions holiday for up to five years. This can be rolled over for a further five years or you can choose to start making contributions again at any time.


On a contribution holiday you do not have to contribute to your KiwiSaver account. However, in this instance you will not receive the government’s member tax credits or your employer’s contribution. (You can still receive the member tax credit if you make voluntary contributions—not out of your salary or wages—while you are on a contribution holiday.)

 

Stay at home mum or dad?

For a start, that’s a full-time job. So, kudos to you!
 

If you’re under 65, living in New Zealand and are a New Zealand citizen or permanent resident, you will get exactly the same benefits as anyone who is self-employed or not employed: up to $521.43 per year member tax credit.

 

Overseas?

Nice, hopefully a bit of pleasure and travel along with all those meetings.

 

You can absolutely contribute to your retirement—make as many contributions as you like. You won’t, however, be eligible for any member tax credits.


Fun fact about tax: your Prescribed Investor Rate  (PIR)

It is important to get your PIR right.  Contact your KiwiSaver provider as soon as possible if your PIR changes. If your PIR is too low, you may have more tax to pay and, if your PIR is too high, you may end up paying too much tax from your KiwiSaver account, which you will not be able to get back.

 

Left it to the last minute?

That’s ok. If you have funds available and want to put them into your KiwiSaver, contact your provider ASAP. Do it sooner rather than later. They’ll need a couple of days to process your deposit and ensure everything is lined up prior to 1 July.

Your government contributions should show up late July/early August.

 

It’s a little un-nerving

Life expectancies are continuing to increase, and most people will live well past the current retirement age of 65.

 

If you’re planning to live off New Zealand Superannuation alone, you may not enjoy your retirement or the lifestyle you are currently used to. NZ Super as at 1 April 2018 is $400.87 per week for a single person living alone or $370.03 each per week for those living together (i.e. married, civil union or de facto couple). And if one partner qualifies (and the other is not included), it’s $308.36 per week.

 

A little step down in income than what you’re currently on perhaps? Yeah, most of us would want to top that up at least a little.


Let’s talk

If you’d like to know more about the differences in the funds, how you can make your KiwiSaver work for you, track your investment and where the money is invested, and the different ways you can access your KiwiSaver funds, please get in touch.

 

Let’s have a no-obligation chat about how you too can get a 50% return on your investment.

 

Your homework

 

1) Click to www.kiwisaver.govt.nz to check out the providers and schemes, choosing your scheme, changing contributions and more.


2) Have a play with the Kiwisaver savings calculator and more at www.sorted.co.nz

 

3) Discover your PIR at www.ird.govt.nz and understand how your KiwiSaver membership works and employer obligations and more.

 

For the year ahead

Moving forward into the next KiwiSaver calendar year, here are three things you should double check:

1)      You’re on the right Prescribed Investor Rate (PIR);

2)      You’re in the right fund (conservative, growth, focused growth);

3)      If you’re self-employed or unemployed, that you are making the contributions you want to make to ensure you get a return next July.

 

 

Simon O’Neill is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

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