Q My son is 18 and has found himself a holiday job. He has joined KiwiSaver and chosen to contribute 4 per cent of his wages. What will happen to his KiwiSaver contributions when he finishes his job and goes to uni in a few months' time?
A As your son is contributing to KiwiSaver through his workplace, as soon as his holiday job finishes his contributions will also stop. If he finds part-time work while he's studying, his contributions will start up again. This will all be done through his employer.
Although he has chosen an employee rate of 4 per cent, his employer is only obliged to top this up with the minimum employer contribution of 2 per cent (increasing to 3 per cent from April 1, 2013). Choosing a higher rate for himself is a smart move, as it will give him more Member Tax Credits (MTC) in July next year.
Because he has turned 18, he will receive 50c for every dollar he contributes himself from the Government, up to a maximum of $521. KiwiSaver members under 18 do not qualify for MTC.
If your son turned 18 before July 1, 2012 he will be entitled to the maximum MTC if he contributes at least $1042 himself.
If he turned 18 later in the year, the MTC will be pro rata.
He should watch out for a statement from his provider before the end of June 2013, which will tell him how much he has contributed himself. Or he can log in to his KiwiSaver account online anytime and check his transactions. Many KiwiSaver investors top up their accounts each year to make sure they will get the full MTC. If your son has made contributions of, say, $300 he will have to add a further $742 - probably too much for a poor student to find. But if you as his parents have spare cash you can top up his account for him, by sending a cheque with instructions directly to his provider before the end of June 2013.
Paying into your son's KiwiSaver account in this way may seem over-generous but it may make it easier for him to get his foot on the property ladder one day.
Some parents help their kids financially when they buy their first home, often lending or giving more than they can afford.
Topping up their KiwiSaver with smaller sums over a period of years might be an easier way to help.
It is also a good way to demonstrate the benefits of setting medium and long-term goals.
Any time after three years of KiwiSaver membership, your son can make a First Home Withdrawal. He can apply to withdraw all his own (including any parental top-ups) and employer's contributions but not the government contributions.
This feature of KiwiSaver is becoming increasing popular, with $57.2 million withdrawn from KiwiSaver accounts in the year to March 31, 2012.
Who knows, perhaps the opportunity to buy that first home will encourage more of our bright young people to stay in New Zealand rather than heading overseas when they graduate.
Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 870 3838. The information contained in this article is of a general nature and is not intended to provide personalised advice. If readers have any KiwiSaver questions they would like answered, please go to www.peak.net.nz or email firstname.lastname@example.org.