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KiwiSaver:
How to make it work for you
Mary's new $9.99 book, published by Random House,
went straight to the top of the New Zealand non-fiction bestseller list. It
could be worth thousands of dollars to you.
The book is available in all good bookstores and some supermarkets.
What is the book about?:
If you are under 65 — regardless of your circumstances — you
should join the new KiwiSaver savings scheme, even if you have to
borrow to do so. You’ll get a kick-start of $1000 plus up to $1040
more each year. If you’re an employee, your boss will also contribute.
And if you don’t own your home, there’s a generous subsidy towards
buying one.
True, your money will be tied up until NZ Super age in most cases.
But there are ways to reduce that impact. That — and much more
— is what this little book is about. The government gives you the
KiwiSaver rules; Mary Holm tells you what they mean for you, and
how you can make the most of them.
There are so many questions: How should you invest? How much?
Should you join if you have high-interest debt? Can your children
join? What if you are self-employed? A beneficiary? Planning to leave
the country?
Who better to negotiate you through all the pros and cons than
Qantas Award winning financial writer Mary Holm,
whose newspaper columns are avidly read and whose
seminars are attended by thousands of New Zealanders
every year? She’s not selling anything but the truth.
Independently assessed by experts and impeccably researched, this is a book you can't do without.
The book includes an extensive index, making it easy for you to find what matters to you.
The material in this book was first published in three special sections in
the New Zealand Herald in early June, 2007. Readers responded
enthusiastically. For example, one reader wrote: "These articles were
extremely informative and enlightening. The information was great and easy
to understand."
Buy Mary Holm's new KiwiSaver book online:
Purchase from Fishpond Bookstore here.
Purchase from Good Returns Bookstore here.
Bulk sales
Buy copies for your extended family, employees, clients or associates - or suggest that the boss buys one each for you and your colleagues! The book is small enough that you can mail out copies in standard small envelopes for 50c postage.
Prices for bulk purchases range from $9 a copy for 11-29 copies down to $6 a copy for 700-999 copies. For more than 1,000 copies, the price is negotiable. All prices include GST and free delivery. For further information, email Mary Holm at mary@maryholm.com
Book Reviews and Comments
Mary Holm has established herself as one of New Zealand's leading financial commentators and probably knows more about KiwiSaver than even Michael Cullen. (The book) is filled with information, answers all the questions you might have about KiwiSaver... Priced at $9.95, it's a great book to pick up for yourself, and if you're an employer trying to answer all the KiwiSaver questions coming from staff then it might be a good idea to buy a few dozen of these to distribute. Herald on Sunday
This well -written little book could make a big difference to your future.... At $9.99 it would appear to be a very good investment. Holm steers away from all the financial gobbledegook that usually surrounds these issues and succeeds in demystifying just about every aspect of KiwiSaver. She doesn't shy away from the negatives either. Ian Jevons, Wairarapa Times-Age
It isn't often you can legitimately say, "You must read this book", but in the case of Mary Holm's "KiwiSaver, How to Make it Work for You", it's absolutely true....We are going to be bombarded with information about KiwiSaver in the next few weeks and months, from everyone wanting a piece of the action. Best then, to read Mary's unbiased book first and make up your own mind. Lynnaire Johnston, Her Magazine (formerly Her Business)
I'm yet to decide where my money should go, but when I've fully digested Holm's advice I'll have a much better idea. This pocket-sized book is a must for those like me who want financial security for the future but don't know where to start. Hauraki Herald
This pocket-sized book is crammed with everything you need to know about the high-profile KiwiSaver scheme. Nelson Mail
(This book) presents the information simply and clearly, avoiding the investment market jargon that can so often scare away readers....You can't buy much for $10 these days. It's even more of a rarity to find something that represents such good value for your $10. Jillian Allison-Aitken, Southland Times
If you still have questions about KiwiSaver, and who hasn't, this economically-priced little pocketbook is likely to have the answers. Author Mary Holm, who is a newspaper columnist and author of several books, is respected for offering unbiased and straightforward advice on all kinds of financial matters. Jo Keppel, Greymouth Star
Stephanie Jones: "It's a great resource, and it's $10 in the bookshop.... She explains it very well...The third part is really good for anybody who's interested in investing...."
Kerre Woodham: "She's great. It's very easy to read even for financial illiterates like me. For ten bucks, it's great value." Stephanie Jones, Paper Plus, Radio book review on Kerre's Café, Newstalk ZB, Sunday July 15, 2007
Mary Holm's handy pocket-sized book is just the thing to sort out whether you should join KiwiSaver.... The strategies for getting the most benefits (without being forced to tie up too much of your future earnings) are well worth the price. Rating: 5 of 5 Stars!
Kathryn Dalglish, Good Returns
Contents of "KiwiSaver: How to make it work for you"
PART I: What is KiwiSaver?
Let’s go!
Won’t NZ super take care of us?
Features of KiwiSaver
How it all works
- Joining up
- Opting out
- Contributing: employees
- Contributing: non-employees
- Contributing extra money
- Taking a contributions holiday
- Earning returns
- Leaving New Zealand
- Getting your money out early
- Getting your money out in retirement
More about the goodies
- $1,000 kick-start
- Tax credits
- Employer contributions
- Salary sacrifice
- Contribution to first home
- Fee subsidy
- Mortgage diversion
- A limited government guarantee
Tax issues
More info for non-employees
- Children
- The self-employed
- Adults not in employment
- Employers
PART II: Why most people should sign up for KiwiSaver - now or later
Weighing up KiwiSaver against other ways of saving
How much difference do the kick-start and tax credits make?
How much difference do employer contributions make?
The bigger picture
Advice for the uncertain
- You feel you can’t afford KiwiSaver
- You are concerned about tying up your money until NZ super age
- You have a mortgage
- You have a student loan
- You have high-interest debt
- You’ve already saved enough for retirement
- You already belong to a super scheme
- You feel confused
- You are worried about losing your money
PART III: Which KiwiSaver scheme is right for you
The first thing to understand: higher risk = higher average expected returns
Which assets should you invest in?
Five ways to reduce investment risk
Choosing a provider
- The default providers
- What to look for in a scheme
- A big issue: fees
- For more info and to keep up
Basics of KiwiSaver
The rules
- Nobody has to join KiwiSaver. But practically everyone 18 to 64 who starts a new job will be automatically enrolled. After two to eight weeks, they can opt out if they wish.
- Basically, every other New Zealand resident under 65, working or not, is also eligible to sign up (See "Who can join Kiwisaver " below).
- Each person can have only one KiwiSaver account. However, you can contribute to it from more than one job, and you can change your provider at any time.
- Employed participants will usually contribute 4% or 8% of their total before-tax income, including bonuses and overtime pay but not including redundancy pay or accommodation benefits. If your employer agrees to it, until March 2010 you and your employer can each contribute 2% of your pay. From April 2010 you will each need to contribute 3%, and from April 2011 onwards you will each need to contribute 4%.
- For non-employees, contribution levels are flexible and can be zero.
- After a year in KiwiSaver, employees can keep contributing or take a contributions holiday. You can renew the holiday every five years, or start contributing again. Non-employees can in most cases simply stop contributing if they wish, as long as their provider permits that. However, it's usually best to keep contributing if possible.
- Your money will be invested, in your name, in a private sector provider’s savings scheme that meets the KiwiSaver requirements. You can choose the scheme. If you don't, Inland Revenue will allocate you to a ‘default’ scheme.
- Your KiwiSaver savings – including money contributed by the government and your employer – remain yours, whether you change jobs or stop or start working.
The incentives
- After three months, the government will contribute a kick-start of $1,000.
- Every year, the government will contribute a ‘tax credit’ of $1042.86 ($20 a week) if you have contributed at least that much during the year, and you are over 18. If you’ve contributed less, the government will deposit the same amount as you contributed. Despite their name, you don't have to be paying tax to get the tax credit. In your first year, the credit will be proportionate to how many months of the July-June year you have been contributing (See "KiwiSaver member tax credits" below).
- If you are an employee, from April 2008 your employer is required to contribute 1% of your gross pay. That will rise yearly to 4% from 2011 on. The government will partly reimburse employers for this expense. At the time of writing, compulsory employer contributions will not be paid to people under 18. or, generally, to those over 65. But if you join KiwiSaver over 60, they will be paid to you for five years. (KiwiSavers receiving ACC or paid parental leave won't receive employer contributions from ACC or Inland Revenue.)
- Some employers may contribute more than the required amount to their employees’ KiwiSaver accounts. No tax will be payable on employer contributions – up to the amount of the employee contribution or 4% of the employee's income, whichever is smaller.
- If you are eligible, the government will also contribute towards the purchase of your first home – starting at $3,000
if you have been contributing around 4% of your income
to KiwiSaver for three years, ranging up to $5,000 if you have contributed for five years. (A couple can get up to $10,000). If you have previously owned a home but Housing NZ Corp. determines that you are in the same financial situation as a first-time buyer, you may also receive the subsidy.
- The government will pay $40 a year towards administration fees.
Getting the money out
- Generally, your money will be tied up until the age that NZ Super starts, currently 65. If you are over 60 when you join, you can’t access your money for five years, eg from age 63 to 68 - and you'll receive tax credits and compulsory employer contributions for those five years.
- The exceptions: You can withdraw some or all of your money if you suffer significant financial hardship or serious illness
(you are permanently and totally disabled or near death), if you emigrate permanently, or – after three years – if you are buying a first home
or in the same financial situation as a first-time buyer. Also, after a year of contributing, you can divert half of your contributions to payments on your home mortgage if your provider and mortgage lender permit that.
- KiwiSaver accounts are treated like other savings when a marriage or similar relationship breaks up. The money is relationship property, to the extent it was contributed during the relationship. A court may order some or possibly all of your KiwiSaver money to be transferred to your former partner.
- When you die (before or after retirement age) your KiwiSaver money goes to your estate.
Who can join KiwiSaver?
To be eligible to join KiwiSaver you must be:
- a New Zealand citizen, or entitled to live in New Zealand indefinitely, and
- living or normally living in New Zealand, and
- under the age of eligibility for NZ Super (currently 65).
State sector employees serving outside New Zealand and voluntary/charitable workers overseas can also join. If you hold a temporary, visitor or student permit you can’t join KiwiSaver.
KiwiSaver member tax credits
The following is from an Inland Revenue statement dated 13 August 2007:
The government intended that people will be entitled to a tax credit that matches their contributions up to $20 a week.
It’s the responsibility of each scheme provider to identify when tax credit entitlement starts for each member, and claim the correct tax credit on member’s behalf at the end of each member credit year. Here are the rules to follow:
| How a person joins |
Tax credit start date |
| KiwiSaver via their employer – automatic enrolment or by opting in |
The 1st day of the month in which deductions commence from wages |
| KiwiSaver via a chosen provider – prior to 1 October 2007 (for both employees and non-employees) |
The 1st day of the month in which a member completes a membership application form, as long as a contribution is made during the period 1 July 2007 to 31 October 2007. |
| KiwiSaver via a chosen provider – on or from 1 October 2007 (for both employees and non-employees) |
The 1st day of the month in which the scheme provider receives the first contribution from the member. |
| A complying fund via their employer on behalf of provider (where IR is not involved in the collection of contributions) |
The 1st day of the month in which the scheme provider receives the first contribution from the member, in relation to the complying super fund. |
Where a member joins via a chosen provider and also opts in via their employer, the tax credit start date is the earlier of the two start dates.
Note that these rules are specific to when tax credit eligibility starts rather than when membership starts.
Scenarios:
| 1. |
I’m an employee. I filled in a KS2 form and gave it to my pay clerk in July 2007, to opt into KiwiSaver. I get paid monthly, so my first contribution wasn’t deducted from my wages until my August pay – on 15 August 2007. When does my tax credit start from?
|
| |
1 August 2007 |
| 2. |
I’m both self-employed and an employee. I contracted directly with my KiwiSaver scheme provider on 4 August 2007 and my first contribution was deducted from my salary on 28 September 2007. When does my tax credit start from? |
| |
1 August 2007 |
| 3. |
I’m an employee. I contracted directly with my KiwiSaver scheme provider on 7 July 2007 and my first contribution was deducted from my salary on 25 August 2007. When does my tax credit start from? |
| |
1 July 2007 |
| 4. |
I’m self-employed. I contracted directly with my KiwiSaver scheme provider on 10 July 2007 and have agreed with my provider to make an annual contribution of $1042.86 on 30 June each year. When does my tax credit start from? |
| |
1 June 2008 |
| 5. |
I’m self-employed. I contracted directly with my KiwiSaver scheme provider on 1 October 2007 and made my first contribution on 2 November 2007. When does my tax credit start from? |
| |
1 November 2007 |
| |
What if I don’t make a contribution (of $1042.86) until 30 June 2008? |
| |
Then your start date is 1 June 2008 |
| 6. |
I’m an employee. I’ve always been a member of my work super scheme but I signed up to the “complying fund” section of it on 16 July 2007. My first contribution to that section was paid to the scheme in August 2007. When does my tax credit start from? |
| |
1 August 2007 |
| 7. |
I’m self-employed. I contracted directly with my KiwiSaver scheme provider on 6 July 2007. I started making contributions via direct debit but they didn’t start until 6 November 2007. When does my tax credit start from? |
| |
1 November 2007 |
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