Oily Rag: It's free money, get into it

By Keith, Muriel Newman

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We are often asked about KiwiSaver. To us, it makes good sense and is something serious savers should get into.

KiwiSaver rules keep changing, so we thought it worth going through the advantages of the scheme.

The reason we are pretty keen on KiwiSaver is because the words "free money" come up time and time again. First, the Government will give you $1000 to "kick-start" your fund. But that's not the end of the free money. Second, when you start contributing, it will also give you up to $10 a week ($521 a year) as a tax credit.

But, there's more. If you are employed (and over the age of 18) your employer will be required to put in 3 per cent of your salary into the fund. That's on top of what they pay you already.

In other words, there's a lot of other people's money going into your KiwiSaver account - for you to keep! Self-employed people can also receive those benefits, but obviously not the employer contribution.

The thing is, anyone of any age can open a KiwiSaver account and benefit from the $1000 kick start and tax credit. A grandparent could open a KiwiSaver account for a newborn with a $10 deposit.

The Government will put in $1000. Even if no more contributions are made until the child starts work, at age 18 say, the $1000 will grow through the investment returns.

However, KiwiSaver is not all roses and chocolates. There are a few negatives. The main one is that KiwiSaver is a superannuation scheme, therefore savings are locked in until you turn 65. Those wanting to retire before then will need to save and invest elsewhere. The other negative is that KiwiSaver funds are not guaranteed and there is no guarantee about performance. So far, the performance has been a bit patchy and in the long run the returns are not likely to be spectacular, but the amount of free money going into the account is likely to counter this.

To a 20-year-old, 65 will seem like an eternity away, but they can "unlock" their KiwiSaver funds to buy their first home. Not only that, the Government will give you more free money (up to $5000) to help with the purchase - per KiwiSaver account (so a couple could receive up to $10,000 for free!).

Therefore a couple that has not owned a home before could opt into KiwiSaver, put in 3 per cent of their salary for five years, then use their contributions, plus their employers' contributions, plus the $5000 subsidy to buy their first home. For most people that will be tens of thousands of dollars in free money.

To be eligible for the first home deposit subsidy, you must: have contributed at least 2 per cent of your income to a KiwiSaver scheme, or a complying superannuation scheme, for at least three years; be buying your first home and be planning to live in the house for at least 6 months. If you've owned a home before, in some circumstances you may still be eligible for the first home deposit subsidy.

Having funds in a KiwiSaver account makes it a little easier to raise funds for a deposit. According to recent media reports, 10,733 people in 2012 drew on their KiwiSaver accounts to put a deposit on their first home. That figure is likely to keep growing, providing welcome support for first-home buyers.

From July 1, new rules came into effect requiring KiwiSaver providers to publish quarterly and annual performance disclosures. The rules also stipulate a consistent approach to the calculation of those performance measures - making the results more transparent and less prone to manipulation.

- Hamilton News

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