Personal finance and KiwiSaver columnist at the NZ Herald

Helen Twose: Top-ups from employers' pockets

The minimum amount an employee/employer pays into KiwiSaver increased from 2 per cent to 3 per cent as of yesterday.

Under current law the KiwiSaver scheme will also help with buying a first home. Photo / Mark McKeown
Under current law the KiwiSaver scheme will also help with buying a first home. Photo / Mark McKeown

Sitting around at a BBQ at the weekend a friend's husband told me the increases in employer contributions coming into effect soon will come out of my pay, that is, the company I work for covers the increased payments by dropping my base pay back. Is this really true? I always assumed the employer contributions were exactly that - coming from their pockets, not mine.

From April 1, 2013 there are two increases happening in relation to KiwiSaver contribution levels.

First increase: the minimum individual contribution rate (also known as the employee contribution rate) is increasing from 2 per cent to 3 per cent.

This means your take-home pay will be reduced by 1 per cent.

Second increase: the minimum employer contribution rate will increase from 2 per cent to 3 per cent.

This means that your employer will have to contribute an additional 1 per cent into your KiwiSaver account (minus the employer superannuation contribution tax which is paid on employer contributions).

Employer contributions do not come out of your take-home pay.

So overall, if you and your employer are each contributing 2 per cent to your KiwiSaver account, from April 1 you will be receiving an additional 2 per cent into your account (minus the tax).

Where an employee and their employer are already contributing at either 4 per cent or 8 per cent of the employee's salary or wages and decide to continue making contributions at these rates then there will be no change in contribution levels.

•Martin Lewington, Mercer New Zealand head.

Is it worthwhile getting kids into KiwiSaver? Are they eligible for the government top-ups and the like?

If you choose to enrol your children in KiwiSaver, they will receive the $1000 government kick-start.

If you choose, you can also put savings into their KiwiSaver account.

Involving children in watching progress on their accounts may teach them good financial and savings habits and also show them how saving over the long term can result in a healthy savings pool.

Under current law the KiwiSaver scheme will also help them with buying their first home.

If children enter paid employment (such as a part-time job after school) they will begin to make contributions.

If they don't want to contribute they can take a contributions holiday.

Children under 18 will not however be entitled to compulsory employer contributions (although some employers make these voluntarily).

Children under the age of 18 are not eligible for member tax credits.

You can only sign children up for KiwiSaver if you are their legal guardian.

If they are between 16 and 18, your child must co-sign the application form with one of their legal guardians.

If you do want to sign your child up for KiwiSaver you will need to arrange for them to have an IRD number issued as they must join under their own IRD number, not a parent's IRD number.

•Donna Nicolof, BNZ head of wealth and private bank.

My question relates to the KiwiSaver member tax credit. I understand in my first year in KiwiSaver the member tax credit is paid in proportion to the amount of time I have been in KiwiSaver during the KiwiSaver financial year.
This means there is little benefit in making a lump sum payment to make the $1042.86 in the first year unless you join at the beginning of the year.
What happens in a full year?
As you need to earn $50,000 a year at 2 per cent to make the $1042.86 which many of us don't and therefore would need to make voluntary contributions to get the full credit.
If I leave it till the end of the year to top up my KiwiSaver to the $1042.86 would I get a full tax credit of $521.43 even though half the money would have been in the account for just a few weeks at most?

In the year that you first join Kiwisaver you will be awarded member tax credits for the number of days you were a member (remember the KiwiSaver year is July 1 to June 30), so if you join on June 1 you will get 30 days out of the possible total of 365 days available for that year.

Once you have joined in the first full and subsequent years of membership you will be entitled to the full member tax credits of $521.43 as long as you have contributed the minimum of $1042.86 in that year.

I know it may come as a shock to you, but yes you will receive the full credits even if you deposit the full amount before June 30, presumably as long as it is processed the deposit could be made on June 29, although you may not want to cut it that fine.

•Peter Christensen, Camelot Group chairman.

•Disclaimer: Information provided is stated accurately to the best of the respondent's knowledge at the time of publication. It is general in nature and should not be construed, or relied on, as a recommendation to invest in a particular financial product or class of financial product. Readers should seek independent financial advice specific to their situation before making an investment decision.

To have your KiwiSaver questions answered by the Herald's panel of industry players email Helen Twose,

- NZ Herald

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