Joining KiwiSaver is a sensible decision for most eligible people between the ages of 18 and 65. There are about 2.4 million KiwiSaver members of whom around 360,000 (just under 15 per cent) are under the age of 18. Clearly, many parents, or in some cases grandparents, have signed theirchildren up for KiwiSaver. There are differing views as to whether this is a good thing to do.
On joining, a child receives the Government "kickstart" of $1000. Children under the age of 18 do not receive the annual tax credit of up to $521 and, once enrolled, cannot opt out. If they are employed, they must contribute a minimum of 3per cent of their pay, yet employers are not required to make contributions. If they are not employed, they, or their parents, can contribute to KiwiSaver at any time, but the funds will be locked in until retirement age unless the member is buying a first home, emigrating, or suffering financial hardship or serious illness.
The advantages of signing a child up for KiwiSaver are that they receive the $1000 kickstart and parents or grandparents can contribute to the fund in the knowledge that the child cannot withdraw the funds unless eligible to do so. The disadvantages are that the child cannot opt out of KiwiSaver and must make contributions when employed unless a contributions holiday is requested. For students and those on low incomes this may not be desirable.
It can be argued that a child, on reaching the age of 18 and being entitled to the full benefits of KiwiSaver, should decide for themselves whether they wish to join rather than having that decision thrust upon them by well-meaning relatives at an earlier age.
-Liz Koh is an authorised financial adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free by calling 0800 273 847. For free e-books see moneymax.co.nz and moneymaxcoach.com.
