Working Abroad Means No KiwiSaver

QUESTION:  My wife and I are New Zealanders who have been living and working in South America since 2001.  Our intention is to return and retire in NZ one day.  On a recent return visit we applied to join KiwiSaver but were summarily refused.  This does not seem fair.  If someone joined KiwiSaver and then left the country would they be kicked out of the scheme?

ANSWER:  The KiwiSaver scheme was set up by the KiwiSaver Act 2006 and is specifically designed for a person ‘normally living in New Zealand’ (with limited exceptions such as a government employee serving outside New Zealand).  KiwiSaver is really a ‘quid pro quo’ for New Zealand tax payers – most adults pay income tax and everyone pays GST (even babies by default when their parents buy food and nappies).  So the government is giving some of that money back as an incentive for New Zealanders to join the scheme.

The government contributions to KiwiSaver accounts are managed by Inland Revenue.  They will only make those payments if the account holder is currently a tax resident in New Zealand. 

I have consulted Inland Revenue on the question of eligibility.  According to their spokesperson ‘the scheme provider has a responsibility to determine eligibility at the time a person opts in through them’.

The scheme provider also ‘has a responsibility to determine the member's eligibility for entitlement to the member tax credit each time the annual claim is made.’  If someone joins KiwiSaver and then heads off overseas, once they become non tax residents in New Zealand they will not be entitled to the annual tax credits from the government (even if they continue to make ad hoc contributions to their KiwiSaver scheme). 

It appears the aim of the government is for KiwiSaver to become less of a drain on their coffers as time goes by.  In the recent Budget the government announced that from April 2013 employer contributions would be fully taxed.  The tax the government will receive from employer contributions for those on higher incomes will more than cover the tax credits they pay out to them, and will partially cover the cost of tax credits for lower income members.

The power of KiwiSaver comes from the combined income stream – individual contributions, the government’s kickstart and annual top ups and, for many people, the employer contributions as well.  It is an attractive scheme and I understand your regret that you are unable to participate while you are living and working abroad.

As published in the Hawkes Bay Today Tuesday 20 September 2011

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.

Considering the worth of holiday

QUESTION:        I joined KiwiSaver when the minimum was lowered to 2%.  My wife has just stopped working to have a baby and we are now living on one wage.   Should I put my contributions on hold?

Answer: You certainly can put your contributions on hold.  Anyone can apply for a ‘contributions holiday’ after they have been a member of KiwiSaver for at least 12 months.  The minimum was lowered from 4% to 2% in April 2009 so I am guessing that you have been a member for over two years.  (For those members who have been in KiwiSaver for less than 12 months, they can apply for a contributions holiday in the case of hardship).

Inland Revenue has a form KS6 which you will need to fill out (in hard copy or online) and return to them to process.  They will inform your employer.  You can suspend your contributions for any period from 3 months to 5 years.  You can also extend your contributions holiday if you need to at the end of the period that you choose.  Once you have started your contributions holiday, your employer will not be required to make any contributions.  You can still make voluntary contributions if you wish to. 

Adjusting to life on one wage is not easy, especially with all the costs of a new baby.  If your KiwiSaver contributions are making a difference, then taking a contributions holiday is a good idea. 

But if you are managing on one wage without going into debt, then I suggest you keep your KiwiSaver going.  For the purpose of this exercise I will assume you are earning $60,000 pa gross.  On this salary you will be contributing $100 to your KiwiSaver each month.  Can you adjust your household spending so you won’t miss that amount? 

Your employer will be contributing at least 2% as well, and you will also be entitled to $521 from the government each year in ‘tax credits’.  So by keeping your KiwiSaver going you will get $1721 from your employer and from the government over 12 months, which you won’t get if you take a contributions holiday for that period. 

I hope this information will help you come to a decision.  This is a special time in your lives and you want to enjoy it as much as possible.

As published in the Hawkes Bay Today 13 September 2011

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.

KiwiSaver still best option for self-employed

QUESTION: I understand the benefits to KiwiSaver are the combination of my input, government and employer contributions. I'm self employed so what happens to the employer contributions? Also I have a very seasonal income, and don't want to commit to regular investments. Maybe there are better options for me?

ANSWER:  For most self employed people KiwiSaver is still a generous Scheme even without employer contributions. This is because it is the only superannuation scheme in New Zealand to which the government makes financial contributions.

When KiwiSaver started 4 years ago employers were not required to make contributions.  Employers started contributing 1% of an employee’s salary from 1 April 2008 and 2% from April 2009. In this way, people on a regular wage do benefit from regular contributions from their employer.  However, every New Zealander over the age of 18 who contributes to a KiwiSaver account is entitled to the same top ups (or tax credits) from the government. 

Firstly, every new KiwiSaver will receive a $1000 ‘kickstart’ on signing up.  Then, those over 18 receive annual ‘tax credits’ - depending on how much they have contributed over each 12 month period.  Employer contributions do not count so the self employed are not disadvantaged. 

One of the advantages of being self employed is that you are not restricted to contributing 2% 4% or 8% of your gross salary – you can contribute any amount you choose, either by regular direct debit or an annual contribution.  Since your cashflow is irregular a lump sum may work best for you.  Others find a monthly direct debit is easier on the cashflow. 

There are many self employed people who contribute $1042 each year (or $87 per month) in order to get the maximum tax credit from the government.  From 1 July this year the government has lowered their maximum ‘tax credit’ contribution to $521 per annum. While you still need to contribute $1042 each year and be a member for the full 12 months to receive this full amount, this is still a worthwhile incentive.  For every month that you delay joining you will get about $43 less from the government.

For a new KiwiSaver investor starting on 1 July this year and contributing $1042 during the year, they will receive an equivalent return (before any investment return) of 50% with the government tax credit, plus the $1000 ‘kickstart’. 

Even without the employer contribution, it would be difficult to find a savings product providing a better outcome than this in the current climate. 

As published in the Hawkes Bay Today 6 September 2011

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.

Major illness grounds to access KiwiSaver

QUESTION: My husband has been diagnosed with a serious illness.  He has given up work.  Can he apply to cash up his KiwiSaver?

ANSWER:  I am very sorry to hear about your husband’s illness.  Yes he can apply for early payout of his KiwiSaver.  Being diagnosed with a serious illness (or becoming permanently disabled) is generally the only time you can apply to cash up your entire KiwiSaver account before the age of 65 - including the ‘kickstart’ and the member tax credits (government contributions). 

According to the KiwiSaver Act there has to be ‘serious and imminent risk of death’ or an illness that results in ‘being totally and permanently unable to engage in work they are suited for…”  Your husband’s KiwiSaver provider should have a standard claim form that he can fill out.  As he is not well I assume you will be helping him with this. 

The claim form requires detailed information to be provided and the claim process may be time consuming.  It will have to be signed by your husband in front of a Justice of the Peace or lawyer as a Statutory Declaration.  It may make things easier for you if you can find a JP who lives near you (look in the Yellow Pages) and may be willing to visit your husband at home.  Your husband’s doctor will also have to complete and sign the claim form, giving detailed medical information to show that his condition is serious.  The trustees of his KiwiSaver scheme will then assess the claim carefully before making their decision whether or not to repay - in part or in full.  Be aware that the whole claim process may take weeks or even months.  If you are struggling financially then I suggest you talk to WINZ about what benefits you may be entitled to, if you have not already done so.

This is a difficult time for both of you and I hope you are getting good support from family and friends.

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 30 August 2011