A: The former. And good on you for being sceptical.
My blood boiled reading your letter. The charitable interpretation is that this man is confused. He's been told that every year many KiwiSavers miss out on a tax credit, and he wrongfully thinks that's because the provider didn't apply for it.
"Hey," he says, "sign up with my company and we will put in the application."
But if that's what he really thinks, he shouldn't be doing that job as he clearly doesn't know what he's talking about.
The more likely interpretation is that he's telling porkies, and is rewarded for the number of people he signs up to his scheme. It's despicable behaviour.
The reason that many people get either no KiwiSaver tax credit or less than the $521 maximum is that they haven't contributed anything, or not enough.
The ideal is to put in at least $1042 each KiwiSaver year -- which runs from July 1 to the following June 30. If you do that, the Government will contribute $521, usually in July.
If you contribute less, the Government puts in 50c for each dollar you put in. So a $200 contribution gets you $100 from the government.
You're quite right that every KiwiSaver provider applies for the tax credit on your behalf -- not just our friend's company.
Your letter is timely, as readers may want to ensure they will receive the maximum $521 this year.
Here's what different people should do about the approaching June 30 deadline:
• Employees who earn more than $34,762 a year and contribute at least 3 per cent of their pay will have automatically put in enough to get the maximum tax credit.
• Employees who earn less than that can ask their provider how much they have contributed since July last year and top it up to $1042 before June 30. Pay the top-up directly to your provider. If the provider doesn't make all of this easy, get back to me. They should. Some good providers take the initiative and remind you to try to top up.
• Employees on a contributions holiday can still make one-off contributions whenever they want to, directly to their provider. Try to put in at least something -- and preferably get your total to $1042 -- to get your share of free government money.
• Non-employees should also try to top up their contributions, if necessary, to bring the total to $1042. For next year, if you set up automatic contributions of $20 a week or $87 a month, you will get to the magic annual total.
• If you've joined KiwiSaver since July 1, 2015, your maximum tax credit will be in proportion to how much of the July-June year you've belonged. For example, if you joined on January 1, your maximum will be half of $521. Ask your provider for help on how much to top up, if any.
One thing our charming salesman got right: if you miss out on a tax credit one year, you can't make up for it later.
KiwiSaver changes
Q: I heard something on the radio about some proposed changes to KiwiSaver, particularly changes to reduce the contributions holiday.
I was not aware there were any rules. The IRD once told me (when I wasn't employed and asked about not contributing) that it was open-ended, and that making contributions depended upon being in employment or not, which seemed logical, as one cannot always control one's employment status these days.
I am semi-retired because of my health, in my early 50s, and am unsure if I could return to full-time work. I may also stop work if I travel abroad. I am still contributing to my KiwiSaver at the moment.
I wondered how proposed changes to the KiwiSaver contributions holiday would affect me and others, other than the obvious (that I wouldn't be contributing, but my unit value would continue to grow, just at a slower rate)?
Will our ultimate entitlement to our savings be affected somehow by the proposed changes to the contribution holidays?
I am also wondering if the age I am entitled to cash it in could change, if the retirement age is increased?
A: No need to panic! What you heard would have been a discussion about eight possible changes to KiwiSaver put forward by the Commission for Financial Capability.
The commission is seeking comments about its ideas, which include: various changes to contribution rates; clearer fee disclosure; membership for over-65s; one-off auto-enrolment for all employees not currently in the scheme; the ability to belong to more than one scheme; and the idea you heard -- a reduction in the maximum contributions holiday from five years to one year.
If you would like to comment on any or all of these interesting ideas, click here.
Says the commission: "Your views and comments will help us develop recommendations for the Government."
Meanwhile, to clarify the commission's proposal in relation to contributions holidays (which apply only to employees who want to stop contributing for a period), it is suggesting they could still take a break for many years if they wanted to, but would have to renew the holiday every year. The idea is that they might then reconsider, and start contributing again.
The self-employed and other non-employees, including people who are between jobs, aren't committed to regular contributions so they don't need to take contributions holidays. But they can and should also contribute if they can.
The contributions holiday idea would have no effect on savings in retirement -- except for those who are nudged into restarting contributions and would therefore retire with more money.
The age at which you can withdraw savings is set at the age NZ Super starts. So if the Super age increases from 65, so will the KiwiSaver withdrawal age. However, I expect the Government would give plenty of warning of such a change. At your age, I doubt if you would be affected.
Bells and whistles
Q: In regard to home purchasing, we bought our first house in 1972 in an outer Papakura suburb for $14,000. It was 100sq m and had three bedrooms, one bathroom, one toilet, kitchen, lounge/dining and laundry.
Note: no en suite, walk-in wardrobe, office, second toilet, dishwasher, carpets or curtains. There was no garage, drive, paths, deck, fences, clothesline, landscaping or letterbox.
Our furniture consisted of an ironing board, a card table and a bed we bought on interest-free hire purchase.
Not "everyone" could capitalise their family benefit as Dr Flint-Hartle stated in your column two weeks ago. We were $1 above the income level.
I was a stay-at-home mum, pretty much the norm then. My husband's take-home pay was $60 a week, of which $20 was mortgage, $20 was savings and $20 was food/transport/medical/insurance, etc.
The oil price shock saw our house sell two years later for $23,500 -- the first of many such increases over the years.
We have had good lives on average incomes, and the bells and whistles weren't missed. Yes, people's expectations have increased along with house prices.
A: So have house sizes. The average house built in the 1970s was 140sq m, according to qv.co.nz. Now it's 205sq m. That's a big change in just 40 years.
It's also interesting to note that your first house, at 100sq m, was much smaller than the new houses of that era. The young then were possibly more prepared to accept a drop in living standards when they moved out of their parents' houses than they are now.
I'm not sure, though, that it's fair to be too critical. Our generation's first homes included many features our parents' first homes wouldn't have had. That just reflects the rising standard of living over time.
I remember as a kid seeing the leftovers from the weekend roast stored in a safe, rather than a fridge.
Frugal mindset
Q: Reading your recent article on house prices versus wages, I think we did not have so many things to buy with our dollars then, although whiteware, etc, seemed more expensive.
My son and his partner have been in their own Auckland house for 2 years. It cost in the low $400,000s. They earn $70,000 between them.
Before they bought, the bank wanted to see that they could each save $200 a week, plus rent.
Their rent, at $400 a week, came to $20,800 a year. Savings at $400 was another $20,800, total $41,600. That left $27,000 for discretionary spending. (They earned then less than $70,000.)
They have two cars for work transport, two phones, plus a social life. They would have greater difficulty now as house prices have gone up so much.
However, my point is that a couple who said they earned $110,000 (in the Herald) said they can't save enough to buy a house. Allowing rent at $450 a week times 52 weeks equals $23,400 a year, they have $86,600 left.
On our budget for running a four-bedroom house, with rates, insurance, and three people, our annual costs are $42,000. So this couple should have at least $44,600 left to save.
That's $89,200 in two years and a reasonable deposit. And I'm sure they could spend a lot less than $42,000.
A: Firstly, yes, whiteware did used to cost more relative to incomes, although perhaps the appliances lasted longer.
When I recently complained to a repairman that my old dishwasher didn't break down nearly as often as my current one, he said people now want cheaper appliances, so the quality has suffered.
On to your main point, which seems to be that people can save if they really want to, we should be careful about judging other people's spending and saving, especially when we know little about their circumstances.
But still, you and your son and partner set good examples of fairly frugal living. You show what can be done -- especially if you have a goal in mind.
Mary Holm is a freelance journalist, member of the Financial Markets Authority board, seminar presenter and 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, Business Herald, PO Box 32, Auckland. 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.
