Signing kids up to KiwiSaver gives them a good kickstart

Question: My friend says she enrolled her children in KiwiSaver when they were babies.  My son is 3 years old.  Should I enrol him in KiwiSaver?

Answer:  As long as your son is normally resident in New Zealand, as his legal guardian you can sign him up to KiwiSaver.  If you do not intend making regular contributions, you will need to ensure that the provider you choose will accept him as a member of their scheme.  He will be entitled to the $1000 ‘kickstart’ and if the fund achieves (say) a 5% per annum net return this will grow to over $2000 by the time he reaches 18.  Enrolling him in KiwiSaver may motivate him to save when he’s older and will provide you with an opportunity to educate him about personal finance.  Once he starts work he should tell his employer that he is already in a KiwiSaver scheme.  They will deduct a percentage of his wages - unless it is a short term position or no PAYE is required (school children earning $2340 or less per year are not required to pay tax).   Once he is 18 his employer will be required to make a contribution as well and he will also be entitled to the government ‘tax credits’.  He will not be able to opt out of KiwiSaver but he will be able to take a contributions holiday.  Currently people who have signed up to KiwiSaver can take a contributions holiday after 12 months, for up to 5 years.  They can even take an early contributions holiday if they are experiencing financial hardship.   As your son is only 3 there are likely to be more changes to the KiwiSaver scheme by the time he starts working.  He will be better off by $1000 (and there may come a time when the government no longer offers the ‘kickstart’ to new members) but more importantly you will be giving him the message that saving and good money management are important.

Shelley Hanna is an authorised financial adviser FSP12241.  Her disclosure statement is available on request and free of charge by calling 8703838.  The information contained in this article is of a general nature and is not intended to provide specific or personalised advice.  If readers have any KiwiSaver questions they would like answered please send them to shelley.hanna@peak.net.nz

Is KiwiSaver for retired folk too?

Any New Zealand resident under the age of 65 can join KiwiSaver.  You will get the $1000 ‘kickstart’ and if you contribute at least $1042 in the 12 months from July then you will qualify for the maximum tax credit from the government of $521.  Up until 30 June 2011 this was $1042 but it has been cut in half in the recent Budget.  The tax credit is worked out pro rata in the first year so if you join and make your first contribution say in September you will not get the full tax credit even if your contributions are $1042 or more.   You are unable to cash up your KiwiSaver until you are 65 or you have been a member for 5 years.  Usually the government tax credits will stop when the member turns 65 but in your case they will continue till you have been in the scheme for 5 years by which time you will be 69.  For most self employed, unemployed or retired folk the easiest way to ensure you contribute enough to get the full government tax credit is to set up a direct debit through your provider for $90 or $100 per month.  Most scheme providers will require a deposit of $100 when you open an account.  If this is received during July then your membership will be deemed to have commenced on 1 July for the purposes of calculating the government tax credit for the year.  Even though the government has reduced the tax credit by 50% it is still a generous scheme.  After 5 years (lets assume there are no further changes to government contributions) you will have put in at least $5210 yourself but you will also have received a total of $3605 from the government. 

As published in 'Hawkes Bay Today' 19 July 2011.

Disclaimer: Shelley Hanna is an authorised financial adviser FSP12241.  Her disclosure statement is available on request and free of charge by calling 8703838.  The information contained in this article is of a general nature and is not intended to provide specific or personalised advice.  If readers have any KiwiSaver questions they would like answered please send them to shelley.hanna@peak.net.nz or go to http://www.peak.net.nz/.