I work in the building industry and I've been a member of KiwiSaver since 2007. Three years ago I put up my contribution level to 8 per cent and it's been going well. Soon I will become a sole trader, working for myself. Do I have to continue my contributions and how will I go about it, if I am not in a PAYE situation? Should I apply for a contributions holiday if I wish to take a break from KiwiSaver while I wait and see what I can afford to contribute?
When you become self-employed it is up to you to generate money for yourself and you become responsible for all outgoings as well.
KiwiSaver is one of those outgoings, and you will need to set up your payments yourself.
Most employees have an obvious advantage with their employers contributing 3 per cent to their KiwiSaver. The self-employed do not have that advantage.
However, they are still eligible for Member Tax Credits, up to $521.43 per year from the Government.
They may also be entitled to the other benefits of KiwiSaver membership, such as First Home withdrawal and the Home Start grant.
Once you become self-employed and are no longer receiving wages, your KiwiSaver contributions will stop.
You do not need to notify anyone, and you are under no obligation to set up payments into your KiwiSaver fund.
A contributions holidays is only for salary and wage earners who are currently contributing to KiwiSaver and wish to stop those contributions for a period of time.
A self-employed KiwiSaver member who wishes to get full MTC should contribute $20 per week into their KiwiSaver fund (or $1042.86 per year).
Talk to your KiwiSaver provider about setting up a direct debit or automatic payment into your account.
You can choose weekly, fortnightly, monthly or even annual payments.
Consider your cashflow, and decide what is easiest.
You are less likely to miss a smaller amount such as $20, but if you expect to receive most of your income around the 20th of the month, then set up a monthly payment for $90 or $100 shortly after that date (you may have to go along with a date nominated by your provider).
If you want to look at the bigger picture and set a goal for your retirement, then use the tools on the Sorted website to help you work out how much you should be putting away.
For example, if you are 50 years old and have $50,000 in your KiwiSaver account now, adding $1040 per year ($20 per week) for the next 15 years will give you around $125,000 at age 65.
As you have been contributing at 8 per cent, it sounds like you are a motivated saver.
If you can afford to put away $100 per week, according to the Sorted tool you could have $215,000 at age 65.
But should you put all your savings into KiwiSaver? Unless you are close to age 65, as a self-employed person you would be wise to put just enough into KiwiSaver to get full MTC (that's $20 per week), and set up one or two savings accounts that are more easily accessed.
Self-employment can be challenging, and you will need cash reserves to see you through quiet times, or when your customers don't pay as promptly as you'd like them to.
You should also focus on repaying any debts, as the interest you are paying could well be higher than any return you may get on your savings.
- Shelley Hanna is an authorised financial adviser FSP12241. Her free disclosure statement is available on request by calling 06 870 3838 or go to www.peak.net.nz. The information in this article is general and is not personalised. Send your KiwiSaver questions to firstname.lastname@example.org