NZ Herald 10 June 2017

AYour letter serves as a reminder for people over 18 to top up their KiwiSaver contributions before the end of June, so they can receive the $521 maximum tax credit.

I suspect many of the thousands who receive little or no tax credit each year miss out because of a misunderstanding. You can still get the credit if you are on a contributions holiday. And despite its name it has nothing to do with whether you pay tax.

As long as you are between 18 and 65, for every dollar you contribute up to $1043 during the July-June KiwiSaver year you will receive 50 cents from the government.

That’s powerful. For non-employees contributing up to $1043 a year, the tax credit multiplies your savings by one and a half. If you would otherwise have retired with $100,000, the tax credit makes it $150,000.

And for many employees, once you add employer contributions your savings are more than doubled. For you, $100,000 becomes more than $200,000.

Employees who earn more than $34,762 a year, and have contributed at least 3 per cent of their pay all year, will have put in more than $1043 by June 30. So they don’t need to do anything.

But if you earn less, or you’re on a contributions holiday, or you’re not an employee, try to get your contributions up to $1043 by depositing the money directly to your provider.

If you don’t know how much more you need to put in, phone or email your provider. Many good providers will already have contacted you with that information.

Now on to your question. I suspect the people setting up KiwiSaver were thinking about the many millions of dollars it would cost taxpayers. Excluding children from the tax credit would help with that. And it’s not like other discrimination. Under 18s will get their day in the tax credit sun when they’re older.

Also, I bet more rich kids are in KiwiSaver than poor kids. So giving them tax credits would tend to increase wealth inequality — at the expense of all taxpayers. On the other hand, adults at all weath levels are introduced to KiwiSaver by auto enrolment when they get a job.

Footnotes:

• Your letter suggests another misunderstanding. You said you wanted your children to contribute enough to get the tax credit. But there’s no minimum. If they were over 18, just a $10 contribution would bring a $5 tax credit. For anyone who can’t afford a top-up to $1043, even a small contribution is good — although the more the better.
• Good on you for intending to contribute for your children. Once young ones reach 18, many are studying and can’t afford KiwiSaver contributions. It’s great when parents or grandparents contribute for them at that stage so they get the tax credit.

AAs you obviously know, people who turn 18 or 65 or who joined KiwiSaver since the previous July 1 aren’t entitled to the full tax credit in that year. Their maximum credit is proportionate to how much of the July-to-June year they are eligible.

But there’s no real need for accurate sums. Just do a rough calculation, adding a little to err on the safe side. If you put in a bit more than you need to, it’s savings in your KiwiSaver account so it’s no bad thing.

For example:

• Pretend your daughter turned 18 on February 1. That means she’s eligible for five out of 12 months. Divide $1043 by 12, and then multiply by 5, which is about $435.
• For you, let’s say you will turn 65 at the end of August. So you’re eligible for two months. Dividing $1043 by 12 and then multiplying by 2 brings you to $174.

In your case in particular, contributing a bit extra is totally inconsequential. Come 65 you can take that money straight back out.

Anyone who finds this too hard should ask their provider for help. If the provider is not forthcoming, switch to one that offers better service. KiwiSaver providers are, in effect, subsidized by the government and should do something to earn that subsidy.

On your other daughter missing out last year because she put money in on June 30, that does seem tough. But it’s a warning to others. Get the money in before, say, June 20 so you can be sure it’s processed by June 30.

AAsk your adviser if, in addition to the fees you pay, he or she also receives commission on your managed fund contributions. That gives an adviser an incentive to push you to save harder.

Given that you have seven more years before you retire, it seems likely you will save enough to stay in Auckland. See last week’s column — published after you wrote to me — for help with working this out.

If you want a bit more, you could always move to a smaller Auckland home.

People sometimes assume they will free up, say, a third of the value of their home if they trade down in retirement. That’s probably too optimistic if you want to move to a low-maintenance place in a convenient location. Such homes often cost a similar amount to a larger suburban family home. But still, you would probably be able to free up a couple of hundred thousand.