Misunderstandings about KiwiSaver abound
Predictably, given that KiwiSaver is new, complex and not yet fully formed, there are many misunderstandings about it.
I’ve already complained about people calling KiwiSaver a workplace savings scheme, when it’s open to everyone under 65.
But the following excerpts from readers’ letters show there are more misconceptions.
- I am concerned about the “tax credit” of $1040 maximum. Is it only available to people who pay more than that in income taxes? Why is it not called “Govt annual contribution”? Is there some pre-requisite to this entitlement related to your income tax? Or am I being too sceptical?
Response: I wouldn’t call you sceptical, but logical. Your suggested “annual contribution” title makes much more sense.
The so-called tax credit has nothing to do with tax. It won’t feature on tax returns, and you don’t have to be a taxpayer to get it.
Incidentally, while I and many others have been writing about a $1,040 maximum on the tax credit, the government says it’s actually $1042.86, which is $20 a week in a non-leap year. I’m settling for $1,043.
- What happens to your KiwiSaver fund should you die? I have heard that it goes back to the fund (government) and not to your next of kin?
Response: That would be pretty nasty, and it’s wrong. When you die — before or after you reach NZ Super age — your KiwiSaver money goes into your estate, the same as any other savings.
Once the money is distributed to your heirs, they can spend it straight away. It’s not tied up until you would have been 65.
A bonus of KiwiSaver: As the money in your account builds up, it will reduce the amount of life insurance you need.
- My wife is 62 and not in employment. Is she eligible to partake of KiwiSaver for two and a half years, and what are her requirements and end result? I believe one is to be locked in for five years before any outcome?
Response: Everyone is locked in until they reach NZ Super age (currently 65), or five years after joining KiwiSaver — whichever is longer. So your wife won’t take out any money until she is 67.
But the good part is that she will receive the $40-a-year fee subsidy and the so-called tax credits not just for two and half years, but the whole five years.
Her requirements? Only that she contributes whatever the provider requires — and some require only, say, a one-off $10. She will do best, though, by contributing $20 a week — or $87 a month — to maximise the tax credit.
As for the end result, read on — this time from a well-informed reader.
- Can you please advise if someone between 18 and 64, who is on a benefit, joins the scheme and contributes $20 per week, will also get the tax credit of $20 per week? If they do. someone 60 to 64 could contribute $1040 for five years, get the same tax credit from the government plus the $1000 kick-start and come out with $11,400 plus earnings. Not a bad return.
Response: You’re absolutely right. And it’s not just those on the benefit but any non-employee.
Employees have to contribute 4 per cent of their income, but they will get employer contributions — assuming the current proposals become law.
All in all, anyone between 60 and 64 does really well out of KiwiSaver.
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If you want to catch up with the basics of KiwiSaver, go to www.maryholm.com, click on the KiwiSaver Book page and scroll to the bottom. [This page has been removed from the website. Visit kiwisaver.govt.nz for up-to-date information.]
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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.