NZ Herald 4 August 2007

AThe official view is that you’re right — employees have to join KiwiSaver as employees. If they tried to join as non-employees, Inland Revenue would work out what was happening, as they have to supply their IRD number when they join.

I’ve heard of some employees challenging this by joining directly through providers and planning to contribute less than 4 per cent. They claim they can do this under one provision of the KiwiSaver Act, which conflicts with another provision. The issue may well end up in court, and who knows what way it will be decided.

Most people, though, won’t want to introduce such hassle into their lives and will go along with Inland Revenue’s version.

There are, after all, a couple of ways to reduce the impact of the rules. Here’s how they might apply to you:

• Suggest the two older children take on small part-time jobs. They could then join KiwiSaver through those jobs only, and their contributions would probably be less than $20 a week.

  If they wished, they could make extra voluntary contributions, directly to the provider, to bring their weekly totals to $20.

  After April 2008, they would miss out on employer contributions on that extra money — assuming employer contributions become law as currently proposed — but they would get the government’s tax credits.

• If that isn’t feasible, how about giving them the money to contribute 4 per cent of their incomes for just one year? Unless they are on really high incomes — and if they are, they should be able to afford KiwiSaver — that wouldn’t amount to a huge total.

  After a year, they could go on contributions holidays, putting in nothing for several years, to make up for your contributing more than $20 a week for the first year.

  Note, though, that while on a contributions holiday, a KiwiSaver member can continue regular or lump sum contributions at any pace their provider will accept — although they get no employer contributions on that money. So you could be kind and keep giving them the weekly $20, allowing them to make full use of the tax credits.

It seems to me that one year of extra generosity towards the older two is probably fair. If all three children take over their own KiwiSaver contributions at about the same age, you’ll probably end up putting more into your 11-year-old’s account over the years.

By the way, in considering what you do for the 11-year-old, did you realise that the government doesn’t pay tax credits to those under 18? Also, it’s proposed that employers won’t be obliged to contribute to people under 18.

You might, therefore, just put a token initial amount into her KiwiSaver account, to secure the $1,000 kick-start, and then stop contributions until she turns 18.

If your daughter takes a job in the meantime, she will have to put 4 per cent of her income into KiwiSaver. But as long as she has been a member for more than a year, she could take a contributions holiday to get around that if she wishes.

If you still want to save for her, of course, there’s nothing to stop you putting more into her KiwiSaver account. But you might prefer to do it in another savings vehicle in which the money is not tied up.

One other thought: To get the children into the savings habit, you could ask the older ones to contribute $5 a week of their own money to start with, and the younger one $1 or $2 a week, and gradually raise the amounts. Even Aucklanders burdened with student loans can manage five bucks.

AIt sounds as if we have a dynasty in the making. What if they decide they would rather be beachcombers?

Either way, actually, it won’t matter that they have joined KiwiSaver.

As I said above, they won’t get any government tax credits or employer contributions until they are 18.

Still, I suggest you sign them up now, while the $1,000 kick-start is there. Who knows whether it will survive government changes?

Once they are in, they will have to contribute 4 per cent of any income they earn or — after a year’s membership — take a contributions holiday. They can then renew those holidays, every five years if they wish, right through until they can get their money out.

Even on a contributions holiday, though, once they are over 18 they would be well advised to keep putting in at least $20 a week each, to get the tax credit. That’s not locking away much money!

For advice on how much you should contribute in the meantime, see the above Q&A.

I wouldn’t worry about future employment negotiations. Making our usual assumption — that employer contributions are passed into law later this year — I expect that employers will increasingly use total remuneration packages.

That means they will offer an employee, say, $50,000 a year, and the employee can take it all as cash — after tax of course — or take part of it as employer contributions to KiwiSaver, which are not taxed.

Employers will be partly reimbursed by the government for their KiwiSaver contributions — up to $20 a week per employee. To the extent they keep that money rather than passing it on to their workers, employers are likely to encourage membership of KiwiSaver rather than the reverse.