Q&As
- Ignore misleading KiwiSaver salesman, but maximize your tax credit
- Change to contributions holidays just a suggestion
- 1970s house much more modest than today’s houses
- Well done! — but take care about judging others’ spending
QWe had an insurance guy come into our work who was also selling KiwiSaver. One of his key selling points for the KiwiSaver scheme he represented was that they would apply for the 500-and-something dollars of tax credits you are entitled to (if you make $1000-and-something in minimum payments per financial year) on your behalf.
He specifically said that not all KiwiSaver funds actually get this money for you, and that a lot of people miss out on their tax credits every year because their providers don’t apply for their tax credits for them. AND that you cannot go back and apply for these in separate financial years, so if it is not done every year, you will never see this money.
He said his own previous KiwiSaver fund hadn’t ever claimed it for him, and he missed out on a number of years of payments.
I obviously then investigated this for myself and I see that the government says your fund will do it for you every year. Was he just BS-ing, or could people be missing out on hundreds of dollars a year?
AThe former. And good on you for being skeptical.
My blood boiled reading your letter. The charitable interpretation is that this man is confused. He’s been told that every year many KiwiSavers miss out on a tax credit, and he wrongfully thinks that’s because the provider didn’t apply for it. “Hey,” he says, “Sign up with my company and we will put in the application.”
But if that’s what he really thinks, he shouldn’t be doing that job as he clearly doesn’t know what he’s talking about.
The more likely interpretation is that he’s telling porkies, and is rewarded for the number of people he signs up to his scheme. It’s despicable behavior.
The reason that many people get either no KiwiSaver tax credit or less than the $521 maximum is that they haven’t contributed anything, or not enough.
The ideal is to put in at least $1042 each KiwiSaver year — which runs from July 1 to the following June 30. If you do that, the government will contribute $521, usually in July.
If you contribute less, the government puts in 50 cents for each dollar you put in. So a $200 contribution gets you $100 from the government.
You’re quite right that every KiwiSaver provider applies for the tax credit on your behalf — not just our friend’s company.
Your letter is timely, as readers may want to ensure they will receive the maximum $521 this year. Here’s what different people should do about the approaching June 30 deadline:
- Employees who earn more than $34,762 a year and contribute at least 3 per cent of their pay will have automatically put in enough to get the maximum tax credit.
- Employees who earn less than that can ask their provider how much they have already contributed since July last year and top it up to $1042 before June 30. Pay the top-up directly to your provider. If the provider doesn’t make all of this easy, get back to me. They should. Some good providers take the initiative and remind you to try to top up.
- Employees on a contributions holiday can still make one-off contributions whenever they want to, directly to their provider. Try to put in at least something — and preferably get your total to $1042 — to get your share of free government money.
- Non-employees should also try to top up their contributions, if necessary, to bring the total to $1042. For next year, if you set up automatic contributions of $20 a week or $87 a month, you will get to the magic annual total.
If you’ve joined KiwiSaver since July 1 2015, your maximum tax credit will be in proportion to how much of the July-June year you’ve belonged. For example, if you joined on January 1, your maximum will be half of $521. Ask your provider for help on how much to top up, if any.
One thing our charming salesman got right: If you miss out on a tax credit one year, you can’t make up for it later.
QI heard something on the radio about some proposed changes to KiwiSaver, particularly changes to reduce the contributions holiday.
I was not aware there were any rules. The IRD once told me (when I wasn’t employed and asked them about not contributing) that it was open ended, and that making contributions depended upon being in employment or not, which seemed logical, as one cannot always control one’s employment status these days.
I am semi-retired because of my health, in my early 50s, and am unsure if I could return to full-time work. I may also stop work if I travel abroad. I am still contributing to my KiwiSaver at the moment.
I wondered how proposed changes to the KiwiSaver contributions holiday would affect myself and others, other than the obvious (that I wouldn’t be contributing, but my unit value would continue to grow, just at a slower rate)?
Will our ultimate entitlement to our savings be affected somehow by the proposed changes to the contribution holidays?
I am also wondering if the age I am entitled to cash it in could change, if the retirement age is increased?
Please would it be possible for you to comment on the proposed changes, in relation to the points I have raised above?
ANo need to panic! What you heard would have been a discussion about eight possible changes to KiwiSaver put forward by the Commission for Financial Capability.
The Commission is seeking comments about its ideas, which include: various changes to contribution rates; clearer fee disclosure; membership for over-65s; one-off auto enrolment for all employees not currently in the scheme; the ability to belong to more than one scheme; and the idea you heard — a reduction in the maximum contributions holiday from five years to one year.
If you would like to comment on any or all of these interesting ideas, go to tinyurl.com/8KiwiSaverIdeas. Says the Commission, “Your views and comments will help us develop recommendations for the government.”
Meanwhile, to clarify, contributions holidays apply only to employees who want to stop contributing for a period. Under the Commission’s idea, they could still take a break for many years if they wanted to, but would have to renew the holiday every year. The idea is that they might then reconsider, and start contributing again.
The self-employed and other non-employees, including people who are between jobs, aren’t committed to regular contributions so they don’t need to take contributions holidays. But they can and should also contribute if they can.
The contributions holiday idea would have no effect on savings in retirement — except for those who are nudged into restarting contributions and would therefore retire with more money.
The age at which you can withdraw savings is set at the age NZ Super starts. So if the Super age increases from 65, so will the KiwiSaver withdrawal age. However, I expect the government would give plenty of warning of such a change. At your age, I doubt if you would be affected.
QRe home purchasing, we hark back to 1972 when we bought our first house, in an outer Papakura suburb, for $14,000. It was 100 square metres, and had three bedrooms, one bathroom, one toilet, kitchen, lounge/dining and laundry.
Note: no ensuite, walk-in wardrobe, office, second toilet, dishwasher, carpets, or curtains. Outside no garage, drive, paths, deck, fences, clothesline, landscaping or letterbox.
Our furniture consisted of an ironing board, a card table and a bed we bought on interest-free hire purchase.
Not “everyone” could capitalise their family benefit as Dr Flint-Hartle stated in your column two weeks ago. We were $1 above the income level. I was a stay-at-home mum, pretty much the norm then.
My husband’s take home pay was $60 a week, of which $20 was mortgage, $20 was savings and $20 was food/transport/medical/insurance etc.
The oil price shock saw our house sell two years later for $23,500 — the first of many such increases over the years. We have had good lives on average incomes, and the bells and whistles weren’t missed. Yes, people’s expectations have increased along with house prices!
ASo have house sizes. The average house built in the 1970s was 140 square metres, according to qv.co.nz. Now it’s 205 square metres. That’s a big change in just 40 years.
It’s also interesting to note that your first house, at 100 square metres, was much smaller than the new houses of that era. The young then were possibly more prepared to accept a drop in living standards when they moved out of their parents’ houses than they are now.
I’m not sure, though, that it’s fair to be too critical. Our generation’s first homes included many features our parents’ first homes wouldn’t have had. That just reflects the rising standard of living over time. I remember as a kid seeing the leftovers from the weekend roast stored in a safe, rather than a fridge.
QReading your recent article on house prices versus wages, I think we did not have so many things to buy with our dollars then, although whiteware etc seemed more expensive.
My son and his partner have been in their own Auckland house two and a half years now. Cost low $400,000s. They now earn $70,000 between them.
Before they bought, the bank wanted to see that they could each save $200 a week, plus rent.
Their rent at $400 a week came to $20,800 a year. And savings at $400 was another $20,800, total $41,600. That left $27,000 for discretionary spending. (They earnt then less than the $70,000).
They have two cars for work transport, two phones, plus a social life. They would have greater difficulty now as house prices have gone up so much.
However, my point is that a couple who said they earnt $110,000 (in the Herald) said they can’t save enough to buy a house. Allowing rent at $450 per week x 52 weeks equals $23,400 a year, they have $86,600 left.
On our budget for running a four-bedroom house, with rates, insurance, and three people, our annual costs are $42,000. So this couple should have at least $ 44,600 left to save.
That’s $89,200 in two years and a reasonable deposit. And I’m sure they could spend a lot less than $42,000.
AFirstly, yes, whiteware did used to cost more relative to incomes, although perhaps the appliances lasted longer.
When I recently complained to a repairman that my old dishwasher didn’t break down nearly as often as my current one, he said people now want cheaper appliances, so the quality has suffered.
On to your main point, which seems to be that people can save if they really want to. We should be careful about judging other people’s spending and saving — especially when we know so little about their circumstances. But still, you and your son and partner set good examples of fairly frugal living. You show what can be done — especially if you have a goal in mind.
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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 [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.