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.