I suspect many of the thousands who receive little or no tax credit each year miss out because of a misunderstanding. You can still get the credit if you are on a contributions holiday. And despite its name it has nothing to do with whether you pay tax.
As long as you are between 18 and 65, for every dollar you contribute up to $1043 during the July-June KiwiSaver year, you will receive 50c from the Government.
That's powerful. For non-employees contributing up to $1043 a year, the tax credit multiplies your savings by one and a half. If you would otherwise have retired with $100,000, the tax credit makes it $150,000.
And for many employees, once you add employer contributions your savings are more than doubled. For you, $100,000 becomes more than $200,000.
Employees who earn more than $34,762 a year, and have contributed at least 3 per cent of their pay all year, will have put in more than $1043 by June 30. So they don't need to do anything.
But if you earn less, or you're on a contributions holiday, or you're not an employee, try to get your contributions up to $1043 by depositing the money directly to your provider.
If you don't know how much more you need to put in, phone or email your provider. Many good providers will already have contacted you with that information.
Now on to your question. I suspect the people setting up KiwiSaver were thinking about the many millions of dollars it would cost taxpayers. Excluding children from the tax credit would help with that. And it's not like other discrimination. Under-18s will get their day in the tax credit sun when they're older.
Also, I bet more rich kids are in KiwiSaver than poor kids. So giving them tax credits would tend to increase wealth inequality - at the expense of all taxpayers. On the other hand, adults at all wealth levels are introduced to KiwiSaver by auto enrolment when they get a job.
Footnotes:
Your letter suggests another misunderstanding. You said you wanted your children to contribute enough to get the tax credit. But there's no minimum. If they were over 18, just a $10 contribution would bring a $5 tax credit. For anyone who can't afford a top-up to $1043, even a small contribution is good - although the more the better.
Good on you for intending to contribute for your children. Once young ones reach 18, many are studying and can't afford KiwiSaver contributions. It's great when parents or grandparents contribute for them at that stage so they get the tax credit.
Tax credit
I was just trying to advise my 18-year-old on how much she needs to contribute this year to get her maximum KiwiSaver tax credit. My elder daughter missed out on the full tax credit last year as she procrastinated and put it in too close to the deadline. That's unfair in my humble opinion. June 30 should mean June 30.
Anyway, I went to Sorted to see if it had a calculator for 18-year-olds, late starters, and retirees, to show what they need to contribute to maximise the Government contribution, and could not find one.
For example, my daughter turned 18 on February 11. And I will turn 65 on August 12. How much should we contribute?
As you obviously know, people who turn 18 or 65 or who joined KiwiSaver since the previous July 1 aren't entitled to the full tax credit in that year. Their maximum credit is proportionate to how much of the July-to-June year they are eligible.
But there's no real need for accurate sums. Just do a rough calculation, adding a little to err on the safe side. If you put in a bit more than you need to, it's savings in your KiwiSaver account so it's no bad thing.
For example:
Pretend your daughter turned 18 on February 1. That means she's eligible for five out of 12 months. Divide $1043 by 12, and then multiply by 5, which is about $435.
For you, let's say you will turn 65 at the end of August, so you're eligible for two months. Dividing $1043 by 12 and then multiplying by 2 brings you to $174. In your case in particular, contributing a bit extra is totally inconsequential. Come 65 you can take that money straight back out.
Anyone who finds this too hard should ask their provider for help. If the provider is not forthcoming, switch to one that offers better service. KiwiSaver providers are, in effect, subsidised by the Government and should do something to earn that subsidy.
On your other daughter missing out last year because she put money in on June 30, that does seem tough. But it's a warning to others.
Get the money in before, say, June 20 so you can be sure it's processed by June 30.
$1m too tough
I'm sure there was a sigh of relief from those aged 60-plus when you said in a recent column that you don't need $1 million for retirement.
Having paid for the services of a financial adviser 12 months ago, we have diligently, anxiously, been striving to save the $1 million the adviser's computer program said we will require.
We are in our early 60s and have worked hard to have a mortgage-free home in Auckland, no debt, an emergency fund of $30,000 and $356,000 in managed funds. The goal of $1 million feels unachievable, despite not spending much on holidays or recreation, and watching our finances closely. We are contributing to KiwiSaver and other managed funds savings set up by the adviser.
We have concluded that our only option is moving out of Auckland to release capital from our property in about seven years.
We trusted the adviser's advice. However, your comments have given us hope that we may be able to stay in our home and continue to live where our friends are.
Ask your adviser if, in addition to the fees you pay, he or she also receives commission on your managed-fund contributions. That gives an adviser an incentive to push you to save harder.
Given that you have seven more years before you plan to retire, it seems likely you will save enough to stay in Auckland. See last week's column - published after you wrote to me - for help with working this out.
If you want a bit more, you could move to a smaller Auckland home.
People sometimes assume they will free up, say, a third of the value of their home if they trade down in retirement. That's probably too optimistic if you want to move to a low-maintenance place in a convenient location. Such homes often cost a similar amount to a larger suburban family home. But still, you would probably be able to free up a couple of hundred thousand.
How are you doing in KiwiSaver?
In May 2013, this column published a reader's letter that included this: "Mary, will you ever desist from your KiwiSaver ramblings? ... The fact of the matter is for the majority of muppets who are investing in this scam they will be lucky to end up receiving $1.05 to their dollar after 20 years of investing.
"It is a good form of compulsory saving, but that's all it is. Don't hold it out to be anything more. The returns will be abysmal. I stand to be corrected but I guarantee in 20 years I'll be right, not you."
My reply included, "As for your 20-year forecast, I'd be happy to take you on, but 2027 is a long way off. So I've made a note to get back to you on KiwiSaver's 10th anniversary, in July 2017.
"Meanwhile, my own KiwiSaver account balance is almost double what I've put in - despite being invested fully in shares through the global financial crisis. And I'm self-employed so I don't get employee contributions. Many have done better still." Since then, I've continued to do very well. But I'm interested in seeing how readers' KiwiSaver accounts have performed.
And you may be interested in your own results too.
If you've never made any withdrawals from KiwiSaver, and you've made regular contributions throughout - or perhaps skipped just a month or two between jobs - please email me the following:
1. The year you joined KiwiSaver.
2. A close estimate of how much of your own money you've put in. Don't include employer and government contributions and returns. See below for how to get this total.
3. Your current balance.
4. Whether you are (a) an employee or (b) self-employed or other non-employee.
5. The name of your provider.
6. Whether your fund is defensive, conservative, balanced, growth or aggressive. To find out, go to this page on the KiwiSaver Fund Finder, tinyurl.com/CheckFund. Fill in your fund, and on the right side it tells you the fund type. While you're at it, you might want to read about your fund.
If you've switched providers but stayed in the same type of fund, that's okay. If you've changed fund type - for example, from conservative to growth - say "Changed fund type".
There are three ways to find out how much money you've put in. The first way is to phone or email your provider. Almost all providers have told the Commission for Financial Capability that they can give you a grand total since you joined their scheme. If you've been with more than one provider, ask both.
Failing that, add up the totals on your annual statements from your provider. These statements have to list your total member contributions and also voluntary additional contributions for the year. Include both. Some providers also put your grand total on the statement, which will save you a bit of addition.
The third way is to go to kiwisaver.govt.nz, click on My KiwiSaver on the top right corner, and sign up if you haven't already done so. That will give your total deductions from wages or salary and also any voluntary contributions you've made through Inland Revenue. It doesn't include any contributions made directly to your provider, so you'll need to add those.
If your total isn't quite up to date, estimate your latest contributions. This doesn't have to be dead accurate. We're just trying to get a good idea of how KiwiSaver is going.
Send your numbered info to mary@maryholm.com with "KiwiSaver performance" in the subject line by Sunday, June 25. I'll summarise the results in the July 1 column, to mark KiwiSaver's 10th anniversary.
I won't publish anyone's name. Thanks.
Mary Holm is a freelance journalist, a director of the Financial Markets Authority and Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. Her website is www.maryholm.com. 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 mary@maryholm.com or Money Column, Private Bag 92198 Victoria St West, Auckland 1142. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.
