What's the minimum for KiwiSaver?

QUESTION:     I am 35, on a modest salary with a mortgage.  I didn’t join KiwiSaver because 4% was too much.  Is it still 4%?

ANSWER:   No, it was lowered to 2% in April 2009 by the current National government.  When KiwiSaver was set up in 2007 many people, like you, decided that 4% was too much to contribute.  For a person earning say $39,000 4% amounted to $30 per week.  Now it’s half that, or $15 per week.  The percentage is based on your salary including bonuses and overtime. 

If you sign up for KiwiSaver your employer will also be required to contribute 2% to your Scheme (as you are over 18).  This cannot be deducted from your agreed salary package - it is on top of your usual remuneration.  If you start with 2% you can later increase this to 4% or 8%.  Your employer is not required to contribute more than 2% (from April 2013 this will go up to 3%).

On a salary of $39,000, at 2% you will contribute $780 over 12 months.  In order to get the full tax credit of $521 per year you must contribute $1042 per year yourself (not including any employer or government contributions).  KiwiSaver runs from 1 July to 30 June each year and the tax credits are based on your contributions over this period.  Although it is called a ‘tax credit’ that is something of a misnomer as it is actually real money from the government paid to your KiwiSaver account. 

You can top up your KiwiSaver - to get more in tax credits - by putting in a lump sum directly to your Scheme provider before the end of June next year.  Some Scheme providers write to their members in June suggesting that they top up their accounts and explaining how to go about it.

If you join before the end of this month (August) the tax credit will be calculated pro rata for the time that you have been a member (11 months).   So for every month that you delay joining you may miss out on those extra dollars from the government (up to $43 per month).  Not a fortune but it’s an extra incentive if you need one. 

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 go to www.peak.net.nz or email shelley.hanna@peak.net.nz.

As published in the Hawkes Bay Today 23 August 2011

It's a marathon not a sprint...

QUESTION:  How is the market turmoil affecting my KiwiSaver?

ANSWER:  Many KiwiSaver Schemes do invest in shares and other growth assets and they will have been affected by the events of the last week or so.  However, for most of us KiwiSaver is a long term savings account which will help fund our retirement many years in the future, so we should not worry about fluctuations in value along the way. 

Although no one likes to see the value of their investments drop, there is actually a ‘silver lining’ for those who regularly save into their KiwiSaver. If you contribute from your wages (or a regular direct debit) you will receive more units in your KiwiSaver if the unit price is lower.  Drip feeding into your savings like this is called “Dollar Cost Averaging”. Dollar Cost Averaging works because when investments are cheap (i.e. they have fallen in value) you get more for your money.

Regular savings also work to remove human emotion from investing – your regular payment goes into the investment regardless of what the markets have done that day, or the latest news headline.

Market downturns are least welcome when you reach 65 or are nearing retirement. This is the time where you should be rubbing your hands together thinking about that large sum of money that’s built up in your KiwiSaver.  KiwiSaver was launched 4 years ago so we have another year before the first batch of investors reach this milestone as KiwiSaver is locked in to age 65 AND for 5 years from when you first join the scheme (so if you join at age 63 you have to wait until you are 68).  For these people it is important to ensure you have an appropriate exposure to less risky investments such as cash and bonds along with a reduced amount of shares and other growth assets. 

For all investors in KiwiSaver, the important thing is that you understand the types of investments you are in and that they are appropriate for your age and stage of life.  If you are unsure of this or whether your Scheme is right for you, I encourage you to talk to your authorised financial adviser.

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 go to www.peak.net.nz or email shelley.hanna@peak.net.nz.

As published in the Hawkes Bay Today 16 August 2011

No Guarantees in Life or KiwiSaver

QUESTION:  Is KiwiSaver guaranteed by the government?

ANSWER:   No, KiwiSaver is not guaranteed by the government.  In fact, every KiwiSaver investment statement is required to have a statement to that effect, according to the KiwiSaver Act 2006. 

You are not alone in thinking that KiwiSaver schemes are government guaranteed – a survey in March last year found that 48% thought that it was.  Before 2008 we didn’t talk about government guarantees but the Global Financial Crisis changed all that.  Three years on there are very few institutions still offering investments covered by a government guarantee (the ‘Retail Deposit Guarantee Scheme’).  Bank deposits have not been covered since early 2010. 

If you do not have confidence in the ability of your KiwiSaver fund manager to invest your money prudently, then you should learn more about your scheme and how your money is invested.  Most schemes have a low risk option which may include investments in cash and bank deposits as well as NZ government stock – this is a loan to the government which it is obliged to repay.  Choosing the low risk option may help risk-averse investors sleep better at night but may limit the return they receive over the longer term.

Remember that the government is putting tax payer dollars into every KiwiSaver scheme as the ‘kickstart’ and the tax credit (for those over 18), so it also needs to be confident that the schemes are run well.  KiwiSaver schemes are operated under clear guidelines set out in the Act.  The manager of each scheme has to make prudent decisions about investing the money received.  They are supervised by an independent trustee and audited.  They are required to send every member an annual statement. 

As with all investment decisions, KiwiSaver investors need to be comfortable with the level of risk that they take on to achieve a desired return.  Seeking advice on which scheme best suits your needs may be more important than a guarantee from the government.

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 go to www.peak.net.nz or email shelley.hanna@peak.net.nz.

I'm off abroad - can I cash up my savings before going?

QUESTION: I joined KiwiSaver when I finished university and started my first job.  I have been a member for nearly 4 years and I think I have about $10,000 in my account.  I am planning to go overseas at the end of the year.  Can I cash up my KiwiSaver?

Answer: Once you stop working in New Zealand and go overseas you will no longer be making contributions to your KiwiSaver but your KiwiSaver Account will remain open.  When you return and begin work back in New Zealand, your contributions to your KiwiSaver can then re-commence. 

If you plan to emigrate on a permanent basis, it will depend on where you are planning to live as to how transferable your KiwiSaver becomes. If you leave New Zealand permanently and settle in, let’s say, the United Kingdom, then you may be able to cash up your KiwiSaver after you have been away for at least 12 months or request that the proceeds be transferred to an authorised superannuation scheme. The amount transferred will include the total balance less any Government tax credits you have received. If on the other hand you decide to settle across the ditch, you will soon have only one option. Recently, the NZ and Australian governments reached agreement on portability of retirement savings.  Australian legislation is expected some time during 2011 to allow for the transfer of full KiwiSaver entitlements, including the Government tax credits, to an Australian complying super scheme. This will also be reciprocal – so Australians settling in New Zealand will be able to transfer their scheme into a KiwiSaver scheme.  Either way, you will have to supply evidence that you are living overseas and complete a statutory declaration that you have permanently emigrated. 

If you think you may return at some time it may be easier to leave your KiwiSaver scheme intact to await your return.  Talk to your financial adviser or your scheme provider before you leave.  Make sure you keep them updated each time you move or arrange for statements to go to your parents’ address if this is an option for you.

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

As published in the Hawke's Bay Today 2 August 2011