KEY POINTS:
Q. Can you join KiwiSaver if you are already in a company contributing super scheme? I was informed that I could not do this. If the answer is yes what are the benefits/pitfalls for me?
A. You were misinformed. Any New Zealand permanent resident under NZ Super age, now 65, can join KiwiSaver, regardless of their membership in any other scheme. The main benefits are that you will receive the $1000 kick-start and the tax credits, which match your contributions up to $1042.86 a year. Those are a big deal.
The tax credits in particular will make a sizeable difference to your total retirement savings. There's also the first home subsidy and so on. See "More info on KiwiSaver" below. You may not, however, get any KiwiSaver employer contributions if your company is contributing to your non-KiwiSaver super scheme.
This list is based on what is being discussed in Parliament now so of course it might change. But as things stand, check if any of these items apply to you:
* Your non-KiwiSaver scheme was set up on or before May 17, 2007. (Right before the Budget.) That will almost always be true.
* Your employer will contribute at least as much to that scheme as it would have to contribute to KiwiSaver. Under the proposed legislation, that is 1 per cent of your total pre-tax pay from April 2008, 2 per cent from April 2009, 3 per cent from April 2010 and 4 per cent from April 2011.
* You joined or will join the non-KiwiSaver scheme before April 1, 2008 - unless it's the State Sector Retirement Savings Scheme, in which case there is no expiry date.
* Your employer's contributions "vest" in you immediately, which means the employer can't take the money back, even if you quit the next day.
If you tick all those, your non-KiwiSaver scheme qualifies as an "existing scheme" and your employer doesn't have to make contributions to your KiwiSaver account as well - assuming the proposals become law. The reason for this, of course, is to stop double-dipping. That would unfairly penalise employers who have been good enough in the past to contribute to employee schemes. Pitfalls to being in both schemes? The only real pitfall is that you have to put in more money in total, unless you can cut your contributions to the non-KiwiSaver scheme. Still, even if you have to dip into other savings to join both, it's worth it. And there's more flexibility in your KiwiSaver contributions than many realise. Read on. Note that your KiwiSaver money is generally tied up until you reach NZ Super age.
Q. Someone in our office purchased your book about KiwiSaver and we are all reading it. I have rung up a financial adviser, and have received some information from them that is not mentioned in your book, and my fellow colleagues don't believe what I'm saying so I'm wondering if you know about it. They seem to be taking your book for gospel and always saying, "Let's see what Mary Holm says", so I wanted to see if you did know about this scenario:
An existing employee can choose not to go through their employer, and contact a scheme provider directly and set up their own scheme. The advantage for this is they don't have to pay the minimum 4 per cent of pay through their employer, still gain the tax credits and still gain the $1000 kick start.
The reason I ask this is I already have an existing super scheme through a provider (which is also a KiwiSaver provider). An adviser from that provider told me not to join KiwiSaver through my employer as I already contribute through my employer to my existing super scheme. But to get the advantage of the $1000 kick start and the $1040 a year tax credits, you had to set up your own scheme and contribute at least $1040 a year yourself (on top of my existing super scheme payments) to the provider in a KiwiSaver scheme.
Have you heard about this option? If so, why isn't it in your book?
A. It isn't in my book because - according to Inland Revenue - it's not an option. You're right that as an employee you can either join through your employer or directly through a KiwiSaver provider. But either way, says Inland Revenue, you must contribute 4 per cent or 8 per cent of your income - at least for a year. There are, however, people who are legally challenging this, as mentioned in this column a few weeks ago. The issue could well end up in the courts. You could, if you want to, get caught up in all of that. Or you could make life easier for yourself and still achieve what the adviser suggests after a year, by joining KiwiSaver through your employer and then going on a contributions holiday after 12 months' membership.
While on holiday, you can put in nothing or whatever you like - including $20 a week or $87 a month or $1042.86 a year - all of which will get you the full tax credit.
If you do that, you are like non-employee KiwiSavers. Your contributions are flexible but, because you are on a contributions holiday, you miss out on compulsory employer contributions - although, as noted above, you might not get them anyway.
Q. I knew it was too good to be true.
My wife, who is shortly approaching her 63rd birthday, saw KiwiSaver as a no-brainer for a person of her age, and she eventually managed to enrol (with some difficulty) through her employer, which happens to be a government department. She also pays into a government scheme through her employer, which was made available only relatively recently. I read in the Herald recently (tucked away on page 3) that members of state sector superannuation schemes can only receive one contribution from the Government.
I understand this to mean that no tax credit is available to any contributor to KiwiSaver with an existing pension scheme receiving state sector employer contributions.
However, no mention is made of super schemes where the non-state sector employer makes a contribution. I fear that the whole house of cards will come tumbling down under the weight of amendments.
A. Your wife is still right. She will do well out of KiwiSaver and, if you are under 65, you should also join.
You're confusing employer contributions, which are scheduled to start next April, with the KiwiSaver tax credits. Your wife won't get employer contributions in both her savings schemes, but she will still get the KiwiSaver kick-start and tax credits, which are well worth having. As for the comparison with non-state sector schemes, I imagine most will stop taking new members after next March, to prevent the possibility of double dipping starting. So there won't end up being any difference between government and non-government employees. I do agree with you, though, that all these amendments don't make it easy to follow what's going on. While KiwiSaver remains a scheme that everyone under 65 can benefit from, it's not as simple as it should be. By the way, page 3 of the Herald is hardly tucked away.
Q. I am wondering if it is possible for me to join a work-related superannuation fund (I am a teacher) as well as a KiwiSaver fund.
I believe the teachers' fund contributions are 3 per cent. Could I also contribute $1040 a year to a KiwiSaver fund and receive the $1040 a year tax credit (plus the initial $1000) or would I be better off just contributing 4 per cent to a KiwiSaver fund?
A. As we've said, you can sign up for both, but you will need to contribute 4 per cent of your pay to the KiwiSaver scheme in the first year.
If you can afford to join the two schemes, that would be great. Despite the fact that you can't double dip, they are both good deals. If you really can't afford to contribute a total of 7 per cent to both schemes, your best course of action is to join KiwiSaver alone for a year.
After that you can either continue with KiwiSaver alone, or go on a contributions holiday but keep putting $1042.86 a year into KiwiSaver, and join the other super fund.
It's not obvious which would be better. You need to weigh up these:
* The level of employer contributions you would get with each option. If one is higher, you should probably go with that one.
* Whether the non-KiwiSaver fund has investment options to your liking. There is a wide range of KiwiSaver investment options.
* How long the money is tied up. The age at which you can spend the money may be younger than 65 in the teachers' scheme - which may or may not matter to you.
* Fees. These can make a big difference to savings. If all else is equal, go for lower fees.
By the way, I suspect you are part of an interesting phenomenon.
A speaker at the recent Association of Super Funds conference in Wellington said a large number of employees in her company had suddenly realised their long-running non-KiwiSaver scheme, with its generous employer contributions, was worth joining.
Until recently, many employees inexplicably didn't bother with such schemes, doing themselves out of a great perk.
KiwiSaver has made everyone more aware of all super schemes, not just KiwiSaver ones.
More info on KiwiSaver
For a clear description of the rules and incentives of KiwiSaver, go to www.maryholm.com, click on the KiwiSaver book page and scroll to the bottom.
* Mary Holm is a seminar presenter, author and publisher. Her website is www.maryholm.com. Her 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.
