This time of year is especially important for the self-employed, but the rest of us can use the KiwiSaver “anniversary” to make sure we have it all dialled in properly. Here’s how.
The KiwiSaver calendar year runs 1 July to 30 June. The Member Tax Credit from the government (to a maximum of $521.43) will be paid out over the coming months, assuming you have contributed the minimum of $1,042.86.
If you’re PAYE, 18 or older, earning $35k or more, and have three per cent from your salary (and your employer matching that with three per cent) then you will have reached the threshold.
If you’re self-employed, then, as we hope you know, you’ll need to make voluntary contributions. You may have set this up with a direct debit from your account or perhaps you’re planning to make a lump sum to your KiwiSaver. If you’re the latter, pay those voluntary contributions today—you are running out of time.
If you need to make a voluntary contribution and think $1,042.86 is not in the budget, don’t be discouraged, you can still receive 50c on the dollar if you deposit anything up to $1,042.86. So, if you put in $500, the Government contribution will still be $250.
This “KiwiSaver New Year” is also a perfect opportunity to ensure that your KiwiSaver is set up right for you. That is, that you are not sitting in a default fund and that your tax rate is correct.
When it comes to the default funds it is simply the worst place for many savers to be, yet there is not an effective way by providers (or the government) to get those members to move.
The big problem with the default funds is they are largely invested in lower risk, lower return assets like cash and bonds (maximum investment in growth assets like shares is 25 per cent). The lower the return, the lower that retirement nest egg will be.
There’s more than $8b (yes, billion) invested in KiwiSaver now. The 400,000 KiwiSavers who are invested in default funds, missed out on an estimated $1 billion over the last 8 years.
The tax rate can be a game changer for you as well. Some Kiwi’s (around 120,000) are paying more tax than they need to. It, literally, can pay to have your tax rate (for Kiwisaver, this is your Prescribed Investor Rate or PIR) correct. If it’s wrong, changing it could make a difference of $26,000 for you in your KiwiSaver. That’s a significant chunk of a first home deposit—or your retirement income.
Google “KiwiSaver tax rate” and get yours in line.
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.