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Do I really have to join KiwiSaver?
No, but you’d be a fool not to. Michael Cullen is so keen to reverse the country’s lamentably low levels of personal savings that he is throwing money at the scheme. There’s a $1,000 sweetener for every new account, $40 towards account fees each year, and contributions of up to $20 a week ($1,040 a year) for those saving regularly. Employers will have to make contributions as well, starting at 1% of your salary next year, then 2%, 3% and 4% in the following years. Their contributions as long as they are matched by you will be tax free to you in your account. This is a 33% wind fall. Plus there are various incentives being offered to help people buy their own home.
OK, how will KiwiSaver help me get on the housing ladder?
From 2010, if you have been diligently paying 4% of your income into a KiwiSaver scheme, you may be eligible for a chunk of cash from the government to go towards the deposit on a first home - $1,000 for each year you’ve been saving, up to a maximum of $5,000 (that’s $10,000 for a couple). Details aren’t finalised, but the government have indicated the income ceiling will be in the vicinity of earning below $100,000 a year for a couple or $140,000 for a household.
What’s the mortgage diversion thing, and will it be any use to me if I’ve already bought my first home?
“Mortgage diversion” exploits the fact that for most homeowners, paying back a mortgage is just about the best investment they can make. Half of your contribution up to the lower of 50% of your future contributions or 2% of your gross pay can be diverted to your mortgage, but you will keep collecting employer and government contributions based on the whole sum you contribute. This is a wise use of your money, whether you’ve just bought your first home or are paying the last few dollars on your fifth. Also,
- Mortgage diversion can only be on your principal home
- Make sure that the KiwiSaver scheme you choose has this optional facility as not all will.
My parents are going to lend me $50,000 to help with the deposit on my first house. Will that kill my chances of getting a first-home-buyer subsidy?
Hard to say, but there’s nothing in Cullen’s Budget to indicate that it would.
If I don’t bother with KiwiSaver, isn’t NZ Super enough to live on?
NZ Super for an individual living alone is $277 a week, after tax. Frightening isn’t it? Could you live the lifestyle you want on this?
I plan to retire at 55. Will I be able to get at my KiwiSaver savings then?
You can’t touch a bean until you’re 65. KiwiSavers accounts are locked till the age you can draw NZ Super, which is currently 65.
Once I’ve paid my bills and rent each week, I don’t have a cent left for savings. How is KiwiSaver going to help me?
Let’s be brutal about this. Cullen is dangling a big carrot, but it’s up to you to reach up and take a bite. So take a deep breath and help yourself. Manage your money better. If you are unable to start saving now, make a plan to be on a financial footing to do so by this time next year. Seek our advice.
What happens if my marriage breaks up?
Super savings are part of relationship property and they can’t be held in trust, so the family court can divide them as it sees fit.
What if I die young?
Your estate will get the money. Make sure you update your will to avoid costly probate.
Do I still have to contribute to KiwiSaver if I run into hard times?
No. As long as you stick with it for the first 12 months, you can then take a contributions holiday of up to five years. In cases of extreme financial hardship or serious illness, the trustees of your fund can free up cash for you, though they decide how much, not you.
My wife or husband is “stay-at-home parent” not earning an income. Can they have a KiwiSaver account?
Yes, and they will also get the $1,000 sweetener and the $40-a-year fee subsidy. As long as you put in at least $20 a week they will pick up $20 from the government too.
Can my children have a KiwiSaver account?
Even children can have a KiwiSaver account and get the $1,000 sweetener, but they won’t get $20 a week from the government unless someone is contributing at least $20 per week on their behalf. This is a great opportunity for Grandparents or Parents to help secure our next generations futures, plus they maybe eligible for the $5,000 first homeowners handout when they get older.
What if I am on paid parental leave or receiving ACC payments? Do I still get top-ups from my employer and the government?
Employers don’t have to match any contributions you make from your paid parental leave (which is paid by the IRD) or from ACC payments. However, the government will still chip in up to $20 a week.
I want to go on an OE. What happens to my KiwiSaver?
Contributions stop when your employment does. You can make deposits from overseas, but there’ll be no subsidies. If you permanently emigrate, your KiwiSaver savings can be released, but the government will claw back its $20-a-week contributions.
My employer already makes good contributions to my work pension, and I’ll get all my money back when I change jobs, rather than waiting till I’m 65. Should I bother with KiwiSaver?
Yes. Remember the free money. You could open a separate KiwiSaver account, but chances are your employer will switch some or its entire scheme to a KiwiSaver scheme anyway. Your employer is obliged to explain all the options to you and we can help.
How do I decide which provider of a KiwiSaver account to use?
All the banks and various fund managers will offer accounts, and you can go where you like, (or your employer may nominate a preference). As with any long-term investment, remember that over the long term shares and property investment do well, not cash, so you need to work out your investment profile and we can help you do this.
My partner is self-employed. Can they still join KiwiSaver?
Yes, and they get the subsidies, though they have no employer to make contributions for them unless they are paying themselves through the PAYE system and decide to salary sacrifice.
I turn 65 in August. Can I join KiwiSaver in July, get my $1,000 kickstart then withdraw it all a month later?
No. Your money’s locked up for a minimum five years.
Just how sick do I need to be to get my money out of KiwiSaver before I reach 65, and will I need a sick note from my doctor?
Pretty sick, and yes. A terminal diagnosis will release the cash. Also, if you are struggling financially, it would be released, at least in part.
Is there a simple way of working out exactly how much my KiwiSaver pension will be worth on the day I turn 65 and how much I should put into it?
Not exactly. Salaries go up and down and investment returns vary. But we can help you do a projection.
OK, I'm convinced. Show me where to sign up.
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