Shelley Hanna: No Govt boost for overseas savers

Q My brother has a KiwiSaver account but is not currently employed in NZ as he works offshore. He does run his own business doing contract mechanical work when he is back here. Can we set up a regular payment for him to continue KiwiSaver contributions?

A: Anyone with a KiwiSaver account can make contributions to it whether they are in the country or not.

You should find a direct debit form in the investment statement - either phone the fund manager for help or look for it on their website. If the contributions are to come from his bank account he will need to sign the form, unless you have signing authority on his account.

If your brother is in a balanced or growth fund then making regular contributions should give him a better outcome as he will get the benefit of Dollar Cost Averaging. This works with the rise and fall of the unit price as the contributions come in, usually giving a better return than paying in a larger amount say once a year.

Now that KiwiSaver has been going for six years more people are realising the benefits of saving, even a small amount, on a regular basis. You can choose to have up to 8 per cent going into KiwiSaver directly from your salary or wages, but some people are in the fortunate position of being able to save more. Anyone who is contributing to KiwiSaver through their wages can also set up a direct debit to save more. It is a very convenient and easy way to save especially if you align it with your pay cycle.

Should all savings go into KiwiSaver? Probably not. The main downside of saving all your surplus income into KiwiSaver is that it is all locked in to age 65, except for certain situations for partial withdrawal such as a first home withdrawal or extreme hardship.

It is a good idea to set up a more accessible savings fund alongside KiwiSaver. It will be useful for emergencies or for future spending such as a child's tertiary education or a holiday. I have known several working couples who set a budget that enables them to live on one income while using the other first to pay off their mortgage as quickly as possible and then saving as much as $40,000 or $50,000 per year.

It takes a lot of discipline but it guarantees financial freedom long before the age of 65. These people find themselves in a situation where they can reduce their work hours or swop a stressful job for something more enjoyable. Sticking to a budget is the key. Some people find it hard not to upgrade their vehicle every few years or fritter money away on clothes and entertainment, but the rewards are there for those that give it a go.

Coming back to your brother, be aware that while he is living and working overseas he will not be entitled to Member Tax Credits so saving into his KiwiSaver will help it grow, but it will not get that boost from the Government each year. That is a bonus for New Zealand residents and taxpayers only.

Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 870 3838. The information contained in this article is of a general nature and is not intended to provide personalised advice.

Send your KiwiSaver questions to shelley.hanna@peak.net.nz. You can read earlier columns at www.peak.net.nz