Helen Twose

Helen Twose on KiwiSaver and you

Helen Twose: Savings tips for returning expats

1 comment

Funds can be used towards a first home, but take care over tax implications of transferred foreign pensions.

Photo / NZ Herald
Photo / NZ Herald

I read your interesting recent article on the Welcome Home Loan and believe it might apply to our returning daughter, who is a 35-year-old coming back to reside permanently in New Zealand after 16 years in Europe.

It struck me that, as she will be joining the KiwiSaver scheme as soon as she returns, she has until the end of November to mug-up the details in advance.

Is there any website I can direct her to which will outline the bare details of the scheme and will have some comment on the finer points of the scheme ... potential pitfalls to be aware of, etc.

Incidentally, she is returning to a well-paid position on December 9, so entering KiwiSaver and saving for the deposit for a home loan (to which we might also be able to contribute a modest cash gift) should not be a problem.

I mention these things in case they might help your response.

Thanks in advance for the help from you or your panel.

Welcome home to your daughter.

It's nice to see the brain drain isn't all one-way traffic.

First KiwiSaver itself.

Because your daughter is not already a KiwiSaver member she will be automatically enrolled when she begins her new job.

Initially she will be signed up to a default KiwiSaver scheme, managed by private sector KiwiSaver providers, but will have the opportunity to make her own choice of provider once she is enrolled, or to opt out if she chooses.

She will benefit from a kick-start payment of $1000 from the Government and an annual member tax credit of up to $521.43 if she contributes $1042.86 each year.

Contributions will automatically come out of her before-tax pay and she can choose to contribute 3 per cent, 4 per cent or 8 per cent.

Her employer will chip in a 3 per cent contribution as well.

Those are the basics but for all the nitty-gritty the best source of information is www.kiwisaver.govt.nz.

It sounds as if she will also be a house-hunter on her return.

KiwiSaver funds can be used to get home buyers into their first home but there are a few rules around this.

Most important for her is a requirement to have been a KiwiSaver member for at least three years.

If she was prepared to wait three years then she would be able to dip into the contributions she and her employer have made, plus any investment returns, but not the government kick-start or member tax credit.

Her KiwiSaver provider will be able to help her out with this down the track.

Again the www.kiwisaver.govt.nz website covers the first home buyer withdrawals in more detail.

Now, the Welcome Home Loan.

While the name makes it sound like something a returning expat might benefit from it, along with the first home deposit subsidy it is aimed at helping people on low incomes buy their first homes.

If you have earned $80,000 or less in the past year, or in partnership with others have a combined household income of $120,000 or less, you can apply for help getting a house deposit together.

You will still need to come up with a 10 per cent deposit but the Welcome Home Loan will boost it to the 20 per cent required now by banks in order to get a mortgage.

The other thing to keep in mind is there are regional price caps that dictate how much the Welcome Home Loan top-up would amount to.

In Auckland, for example, you can use the Welcome Home Loan to buy a house worth up to $485,000 but the price cap varies across the country to reflect differences in the price of an entry-level house.

The Welcome Home Loan is administered by Housing New Zealand and more information on the nuts and bolts of the scheme is on the www.welcomehomeloan.co.nz website.

Given that your daughter has been away a number of years, it is possible she has accumulated funds in an overseas pension plan.

If she is returning for good she may think about transferring this money into KiwiSaver but there are implications if she wants to access that money to buy her first home.

Simon Swallow, director at international pension transfer specialists Charter Square explains: "As the daughter will be non-resident when she returns (on the assumption that she has been outside of New Zealand for 10 years or more according to the IRD) then she will have a four-year window when she can transfer her foreign pension here, assuming that it can be transferred.

"If her European pension is a UK pension and not a state pension then she may transfer this to New Zealand.

"If she does transfer the pension to a KiwiSaver in New Zealand and is allowed under the KiwiSaver rules to withdraw the funds to fund her first home purchase, then consideration needs to be given to foreign tax consequences of doing this.

"If the transfer to the KiwiSaver was from a UK registered pension scheme the KiwiSaver first home buyer's withdrawal would be an unauthorised payment (as such a payment is not allowable in the UK).

"If this unauthorised payment was made when she had been a tax resident in the current or any of the five previous complete and consecutive UK tax years then the tax authorities there would send a bill for 55 per cent tax on the payment."

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, helentwose@gmail.com.

- NZ Herald

Have your say

We aim to have healthy debate. But we won't publish comments that abuse others. View commenting guidelines.

1200 characters left

Sort by
  • Oldest

© Copyright 2014, APN New Zealand Limited

Assembled by: (static) on red akl_n1 at 29 Aug 2014 16:37:25 Processing Time: 371ms