Combining kids and KiwiSaver
Every New Zealander under 65 will benefit from joining KiwiSaver, including newborns. But the rules — and how to make the most of them — are different for children, and many readers have questions about that. Here are a couple:
- “I want to start KiwiSaver accounts for my two teenage children. But I read that savers below 18 are not eligible to receive the $1.043 per year member tax credits on any contributions. Is this correct?”
Yes. Children don’t get the tax credits — nor compulsory employer contributions — until they turn 18. But they do get the $1,000 one-off kick-start, and that’s why I recommend signing up children now. Who knows when a government might take that away?
Once they are signed up, if they hold or start a job, including part-time work, 4 per cent of their pay will go into KiwiSaver unless they take a contributions holiday.
Anyone can take a contributions holiday after they have been in KiwiSaver for a year or more — and Inland Revenue says it won’t be difficult to take a holiday.
Still, it might be good to discourage that. Putting away 4 per cent of pay is a pretty good habit for teenagers to get into. That’s how people on relatively low incomes end up retiring in comfort.
- “Will kids or their parents have to make regular contributions to their KiwiSaver accounts to keep them open? And how much? Given we have four kids, regular contributions could be too much for us. But if it is only a small amount, we would be very interested. The account could serve as a great contribution for the deposit for their first home.”
While employee members have to contribute to KiwiSaver or take a contributions holiday, there is no government rule to say anyone who is not employed — including children — has to contribute regularly.
True, some providers might insist on regular contributions. But the following providers accept lump sums: AMP, AonSaver, Fidelity Life, Gareth Morgan, Grosvenor, ING, SuperLife, Westpac and possibly others. In some cases, there may be quite a high minimum lump sum, but at least some of these providers will accept a one-off payment of $5.
You could, therefore, make quite small annual contributions to each child’s account. The money would build up nicely over time.
Note, though, that the money is tied up until the child uses it to buy their first home or reaches NZ Super age (unless they emigrate permanently or face serious illness or financial hardship).
The money can’t be used, for instance, for tertiary education. Some parents may prefer to do KiwiSaver minimally — contributing just a small sum at the start to get the $1,000 kick-start — and make other savings for their children in more accessible accounts.
On the other hand, having money specifically aimed at a first home is no bad thing.
Speaking — or should I say writing? — of which, to qualify for the KiwiSaver first home subsidy you have to contribute for at least three years. The government hasn’t yet decided whether there’ll be a minimum annual contribution, nor whether the three-year clock can start ticking when someone is under 18.
It may not matter much, though. Even if your child has to keep contributing from 18 to 21 to get the $3,000 subsidy — or until 23 to get the maximum $5,000 subsidy — getting them signed up now is a great first step to home ownership.
Quick KiwiSaver info
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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.