This article was published on 15 November 2008. Some information may be out of date.

2 Q&As on National’s proposed changes to KiwiSaver

Meaningful Christmas presents

Readers’ views on KiwiSaver

QI was wondering if anything in KiwiSaver will be changing with the new government. I am wanting to put in my deposit, which was $1043 last year ending June 30.

How much would I put in this year to get a double up, and does it still apply with the new government?

AIt sounds as if you are a non-employee — perhaps self-employed, a beneficiary, someone at home taking care of children or retired but under 65.

In that case, KiwiSaver won’t change for you under the National-led government. It will still make sense for you to put in up to $1043, which is $20 a week or $87 a month, and that will be matched by the government’s tax credit.

QI am somewhat confused by the National Party’s proposed changes to KiwiSaver and how they might impact on me.

I am an 8 per cent contributor on a 100 per cent growth plan which I joined 23rd October 2007. I am 64 years old, work three days a week and expect to continue working for another 18 to 24 months.

I intend to take the money out after the five years have elapsed — on or about October 2012. I acknowledge that it will not be a huge sum, but I may as well have the most that I can make it. To that end, between retirement and October 2012 I will make contributions to take advantage of any tax or other benefits.

How might the National Party’s proposal impact on me? Any comment would be welcomed.

AFirstly, good on you for getting into KiwiSaver. It’s a great deal for those in their early sixties — under whichever government.

Funnily enough, some of the changes the new government plans for KiwiSaver from next April 1 won’t affect you as much as many employees. The changes are:

  • Employees will be able to contribute just 2 per cent of their pay if they wish. This will help people struggling to afford KiwiSaver. But you are already putting in more than the current 4 per cent minimum, so that doesn’t affect you.
  • The maximum tax credit for employees will be 2 per cent of their pay, even if they contribute more than that — unless National changes this proposal, and I do hope it does.

This will affect every employee who earns less than $52,150 a year — which may well include you, as a part-timer.

Under the current scheme, the tax credit equals the KiwiSaver’s own contributions, up to $1043 a year. Some lower-income employees whose contributions don’t total that maximum are putting in extra money so they can get the biggest possible tax credit — and that may be why you are putting in 8 per cent. But under National’s plans, they won’t be able to increase their tax credit by topping up their contributions.

Meanwhile, non-employees will still be able to contribute whatever their provider agrees to, and most providers are flexible about that.

That means that when you retire you will be able to put in $1043 a year and get the maximum tax credit, but now you can’t. Your situation highlights the silliness of this proposal.

  • Compulsory employer contributions will still rise from 1 per cent to 2 per cent next April. But that’s where they will stay, no longer rising to 3 per cent in April 2010 and 4 per cent in April 2011. However, it sounds as if you will be retiring in 2010 anyway, so it won’t make a lot of difference to you.

    While employers can always put in more than the compulsory amount, they will be less likely to do that under National. That’s because, from next April, it is taking away the employer tax credit — which reimburses employers by up to $1043 per employee per year.

    What’s more, employer contributions above 2 per cent will be taxable, whereas currently the cut-off is 4 per cent. That means that if an employer should decide to generously give more than the minimum, its employees will get less benefit from it.

  • Employers will be permitted to give non-KiwiSaver employees a pay rise to match the employer’s contributions to KiwiSaver, as long as this is negotiated in good faith. A few months ago, the Labour government changed the law to forbid this.

    If this happens in your workplace, you and others in KiwiSaver will miss out on that pay rise. Your non-KiwiSaver colleague gets money in the hand, while you get it in KiwiSaver. Note, though, that the non-KiwiSaver’s pay rise will be taxed, whereas the contribution to your KiwiSaver account won’t be.

  • It’s possible that it will be easier to qualify for the KiwiSaver first home subsidy under National.

    Currently, you have to contribute 4 per cent of your pay for three years to get a $3000 subsidy, ranging up to five years for a $5000 subsidy. Given that many people will change to contributing just 2 per cent to KiwiSaver, I’ve asked Bill English if National will drop the subsidy requirement to 2 per cent, but he hasn’t yet got back to me. Perhaps he’s had a busy week or something.

I should note that all of the above is based on National’s policy statement before the election. It’s possible they will have second thoughts about some aspects — such as the 2 per cent cap on employees’ tax credits — before changing the KiwiSaver Act.

It’s also worth noting that National has said it “will review KiwiSaver once it is bedded in, with a view to introducing a ‘3+3’ alternative option in the future, if economic conditions permit.” That means employees could choose to contribute 3 per cent of pay and their employers would also contribute 3 per cent. I like it — although some employers might not be so keen.

One other comment about your situation: Are you clear about your reasons for investing in a high-growth fund?

Normally, I wouldn’t recommend that if you are planning to spend the money within less than ten years, as there’s a fair chance that the markets will fall and not have time to recover.

However, you might be intending to spend your KiwiSaver money later in retirement. Or it might be such a small portion of your total savings that you are just having a fling with the money, and won’t mind much if it performs badly. Given that a fair chunk of it will be money from your employer and the government, perhaps you think, “easy come; easy go”.

If neither of those situations applies, I suggest you leave the money so far contributed where it is — you don’t want to bail out while the markets are down. But you could ask for new contributions to go into a conservative or balanced fund.

MEANINGFUL CHRISTMAS PRESENTS

Every year the list gets longer. More and more charities are offering programmes under which you can buy a gift for a person in need, on behalf of your relative or friend.

The gifts range from a few dollars for a small animal, such as a goat or chicken, to $25 to help restore someone’s sight to more than $1000 for a clean water system. In most cases, the items will help people to help themselves, by assisting with farming, education, building, making clothes and so on.

Some of the organisations acknowledge that the money doesn’t always go directly to buy, say, a chicken or a packet of seeds. It’s more likely to be included in a lump sum to be spent on a project that includes giving people chickens and seeds.

But who’s to say that your particular $12 didn’t buy a couple of chooks? And who cares anyway? The point is that the money is going towards something much more useful than yet another unappreciated CD or scarcely worn T shirt or toy that quickly becomes boring.

And it can be quite fun to match gifts with the recipients — school books for children, medical kits for health workers or wheelbarrows for gardeners.

Better still, let the recipient choose their own gift — even if that means the choice happens on Christmas Day so the charity gets the money a bit late. It’s surprising who opts for a dunny after they stop to think about how that will improve people’s lives.

You might find, too, that an extended family — perhaps including kids — could club together on Christmas Day and put in enough for a major donation, for example, $2700 for a hand-operated tractor. That sounds a lot, but some families spend more on presents for one another that nobody needs.

Besides, research shows that people get more happiness from giving money away than from spending it on themselves, and instinctively we probably already knew that.

If you want further inspiration, try this quote from Nelson Mandela: “Overcoming poverty is not an act of charity — it is an act of justice.”

There’s a considerable tax bonus, too. Your gifts are eligible for the charitable donations tax credit, which means for every $100 you give, you get $33.33 back from the government. Note that the tax credit no longer has a maximum.

READERS ON KIWISAVER

Here are some of the winning entries in the Herald’s Money Column giveaway of my book, “KiwiSaver Max: How to get the best out of it”. To enter, readers had to say in 50 or fewer words what they think of KiwiSaver — good, bad or both.

KiwiSaver, a no brainer
put some away for a rainy day
choose a fund and don’t go astray
in the long run you’ll be o.k.
and be able to afford your personal trainer

— Gerard van Daalen, Glendene, Auckland

Mary’s comment: Here’s hoping you’ll be fit enough in retirement to need the trainer.

I think the KiwiSaver package is complicated and haven’t made a decision about whether it is good or bad yet. We decided to put our single income towards the mortgage and living costs. But after reading on your website it may look a good option to join.

— Lucy Kennedy, Napier

Mary’s comment: The numbers show that being in KiwiSaver should grow your wealth faster than concentrating on repaying your mortgage faster than necessary.

The children have grown and gone; the husband went and with him the health insurance; goodbye corporate lifestyle; what savings I have are lost in Hanover Finance. Join KiwiSaver, it comes with an incentive and an easy way to save each week, despite all the complicated things written about it!

— Tangie Thomas, Greenlane, Auckland

Mary’s comment: Sorry about the complications. It’s just that there’s a lot to KiwiSaver.

No paywalls or ads — just generous people like you. All Kiwis deserve accurate, unbiased financial guidance. So let’s keep it free. Can you help? Every bit makes a difference.

Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mar[email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.