This article was published on 25 April 2009. Some information may be out of date.

Q&As

  • It’s top-up time for many people in KiwiSaver
  • More ideas for couple having trouble affording their first home
  • 3 Q&As on the government’s new student loan repayment bonus

QIn February this year I started a new job and was automatically enrolled in KiwiSaver. About $200 has been deducted, but unfortunately I did not enjoy the job and have left.

Assuming I cannot find another job in the next few months, I believe I can top up my contributions to receive a matching member tax credit from the government.

I understand that the KiwiSaver year runs from 1 July to 30 June and that if I top it up, it is on a pro-rata basis.

Can you tell me what amount I could pay in before 30 June to get the maximum benefit for this first part year?

Also, in March my partner joined KiwiSaver and she will contribute about $500 before 30 June. Is she able to top up this amount and would it be worthwhile to do so?

Your advice would be much appreciated.

AThe next couple of months is top-up time for many KiwiSavers who don’t expect to have contributed at least $1043 to their KiwiSaver accounts between July 1 2008 and June 30 this year.

For those who joined KiwiSaver before last July 1, the situation is straightforward. It’s a great idea to increase your contributions before June 30 until they reach $1043.

For every dollar up to $1043, the government will make a matching contribution, so your input is doubled. And twice as much going in means twice as much in retirement.

For newer KiwiSavers — such as our reader or his partner — it’s a bit more complicated. Your maximum tax credit in your first year is proportionate to how much of the July-June year you have been a member.

Generally, you work it out from the first day of the month you joined. So if you signed up halfway through the KiwiSaver year, in January, your maximum tax credit will be half of $1043, or about $523.

In your case, you’ve belonged to KiwiSaver for five out of 12 months. Five twelfths of $1043 is $435. You’ve already contributed $200, so put in $235 more before June 30. I suggest you do it by mid-June, just to make sure it is processed by the end of the month.

For your partner, the maximum tax credit this year is four twelfths of $1043, which is $348. Given that she will already have contributed $500, she won’t gain anything extra by contributing more — unless she simply wants to tie up more savings in KiwiSaver.

If you want more detailed info on tax credit timing in your first year in KiwiSaver, see Incentives on the KiwiSaver Basics page on www.maryholm.com. [This page has been removed from the website. Visit kiwisaver.govt.nz for up-to-date information.]

QThe couple on $60,000 who couldn’t afford to buy their first home, in your earlier column, might also consider increasing their income.

In the short term they could take a secondary part-time job; take in a boarder/flatmate/student; start a part-time business.

These options could increase their deposit and also their mortgage-paying ability, but don’t have to be forever.

They should also make sure they receive all relevant assistance e.g. they might qualify for a Welcome Home loan. In the longer term they could upskill and find a better paying job.

AThe couple might find some of your suggestions a bit condescending, as I’m sure they will have thought of them. But it’s not all obvious. For example, not everyone thinks of getting a boarder or flatmate, and I’m sure many don’t know about Welcome Home Loans — so thanks for writing.

Welcome Home Loans are for people who can afford mortgage payments but don’t have a deposit.

The government provides mortgage insurance to help you borrow up to $200,000 with no deposit, or $280,000 with a small deposit. With mortgages at that level, clearly the house must be modest, especially in Auckland.

To be eligible, your household income must be less than $85,000, or $120,000 for three or more. For more information see www.welcomehomeloan.co.nz.

QThanks for your answer to the student loan question in last week’s column. I have another student loan question.

The formula you gave suggests that I should pay off my loan ASAP. Also I have enough money in the bank, currently earning around 3 to 4 per cent, with which I can pay off my student loan ($17,000) in full.

If I do, do I get the credit (i.e. money back) for the amount the government cancelled?

For example, say I pay off $17,000 now, I’ll be student-loan-free. If I do, will the government cancel $1700 and I get that money back as credit at the end of this financial year, or do I get no money back as there is nothing to cancel?

ASome good news for you. But first, a quick recap for other readers.

The government has proposed a bonus to encourage people to repay their student loans faster. If you make voluntary repayments — above the compulsory amount — of $500 or more in an April 1 to March 31 year, your loan balance will be reduced by 10 per cent of the voluntary repayment. For example, if you repay $800, your loan will be reduced by an extra $80.

Should you make use of this? The formula for student loan borrowers living in New Zealand is as follows. Subtract $20,000 from your salary and take 30 per cent of the remaining amount. If the answer is more than your student loan, pay the loan off as quickly as you can, making use of the bonus. If the answer is less than your loan, keep making just the compulsory loan repayments, and recalculate each year.

If, for example, you earn $60,000, subtract $20,000 to get $40,000. Thirty per cent of that is $12,000. If that is more than your loan, pay it off using the bonus.

Now to your question. I understand from Inland Revenue that student loan borrowers who repay their loan in full any time after April 1 2009 are expected to receive the voluntary repayment bonus as a refund after the end of the tax year, next March 31.

Note, though, that the bonus is only a proposal at this stage. The legislation hasn’t yet been introduced to Parliament. Inland Revenue’s responses to your and the following readers’ questions are just based on their understanding of the proposal.

If you want to be cautious, perhaps you should wait until it becomes law — presumably some time later this year.

In any case, in your situation — assuming you live in New Zealand and so are not paying interest on your student loan — you’d be better off to wait. If you repay the loan next March, you can earn interest on your $17,000 in the meantime.

QMy son recently moved to work in Australia. He is interested in paying off his student loan as fast as he can as it is now attracting an interest rate of 6.8 per cent.

If the 10 per cent rebate is going to become law later this year, should he wait till that happens to pay any voluntary amounts to get the benefit of the 10 per cent bonus? Or, if he pays it off before it becomes law, will he still get the benefit of the 10 per cent bonus with retrospective effect, i.e. any amount paid voluntarily after 1 April 2009?

We would appreciate any clarification you can provide as queries with IRD have resulted in their telling us to watch the developments on the Beehive site.

AYour son’s circumstances are different from the person above. Because he’s paying interest on the loan, the sooner he repays the better.

Inland Revenue says the following: “Under the proposal, the voluntary repayment bonus will apply retrospectively from 1 April 2009, even though the legislation will be enacted after that date.”

Theoretically, at least, the legislation could be changed before it’s passed. But — given what the government has said — it’s hard to imagine a change that would leave your son disadvantaged if he makes repayments now.

Put it this way: If that does happen, I will be yelling about it in this column!

QI have a question about the proposed student loan repayments bonus. What happens if you overpay?

I understand that the bonus will be credited at the end of the financial year. Say you paid back every cent you owed this month, do they give you back the 10 per cent next year?

I am heading overseas shortly for more than 183 days (therefore my loan will no longer be interest-free). Do I (a) repay in full and get 10 per cent back in a year’s time or (b) repay the balance less 10 per cent and that will get wiped at the end of the year, but presumably the outstanding balance will gain interest in that time?

AAs stated above, if you repay the loan in full, under the proposal you will get the repayment bonus as a refund after next March 31.

On your second option, Inland Revenue says it is “currently considering how repayment arrangements will apply under the proposed legislation for student loan borrowers who repay their loan balance less 10 per cent.”

If there’s not a huge amount of money involved, it might be simpler to just go with your first option.

By the way, if you do choose the second option, don’t simply subtract 10 per cent from the amount you owe. The maths don’t work like that.

For example, if you owe $1,000 and pay back $900, you will receive a repayment bonus of $90, so you are $10 short.

You need to divide your loan by 11 and then multiply by 10. For example, with a $1000 loan, you would repay $909.09. You would then get a bonus of $90.91 — rounded to the nearest dollar — which would bring you to the $1,000 total.

BOOK WINNERS

The following have won a copy of Mary Holm’s new book, “The Complete KiwiSaver”. Random House has put the books in the mail to you.

Carol Adams, Orewa; Jean Bench, Mt Albert: Lynn Hansen, Papamoa; Mike Hawkins, Auckland; Gareth Hughes, Tauranga; Monica Kwok, Mt Roskill; Lillian Kuan, Ellerslie; Amit Luis, Mount Wellington; Murray McAlister, Tirau; Heather Ririnui, Otumoetai.

Thanks to everyone who took part in the book giveaway survey. Some results from the survey will be published in this column next week.

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.