Helen Twose 's Opinion

Personal finance and KiwiSaver columnist at the NZ Herald

Helen Twose: Funds can take a holiday during big OE

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Contributions may stop automatically when overseas, but people can still pay in, without getting the tax credits.

There is no limit to the number of contributions holidays you can take. Photo / Martin Sykes
There is no limit to the number of contributions holidays you can take. Photo / Martin Sykes

I have a son who has been in London for just over a year to do the usual young person OE thing.

He has been in KiwiSaver since the beginning of the scheme and he is serious about saving for his retirement, but he does not know how long he'll be there and hopes one day to return to live in New Zealand.

The questions I'd like to ask are:

1. How long can a contribution holiday be?

2. If he's to join a similar scheme in London, can his KiwiSaver be transferred there and vice versa i.e. are there reciprocal superannuation savings schemes between the two countries?

3. If there are no reciprocal arrangements between us and England, should he withdraw his KiwiSaver funds now and restart it when he's back here?

What are the advantages and disadvantages of doing so?

Okay there's a bit to cover here - you have raised quite a few issues!

To answer your first question, KiwiSaver members who are employees in New Zealand can apply to Inland Revenue for a contributions holiday of between three months and five years.

There is no limit to the number of contributions holidays you can take.

However, because your son is no longer working in New Zealand he does not need to apply for a contributions holiday; his employee contributions would have stopped automatically when he left his job to go overseas.

Some schemes may have minimum contribution requirements for non-employees, but many KiwiSaver schemes do not.

So it is very likely that your son is no longer required to make any contributions to his KiwiSaver account.

If he hasn't already done so, it would be a good idea for him to let his provider know that he is no longer in New Zealand.

To answer your second question, there are currently no reciprocal superannuation scheme agreements between the United Kingdom and New Zealand, but your son has several options while he is in the UK.

He can make voluntary contributions to his KiwiSaver account, either to his provider or directly to IRD.

However he would not be entitled to any member tax credits while he is overseas.

He could also make a lump sum payment into his account when he comes back to New Zealand.

If your son decides he actually has no intention of returning to New Zealand from overseas, he can apply to withdraw all his KiwiSaver funds on the grounds of permanent emigration.

If this is approved he will be able to withdraw everything except the member tax credits, which will need to be paid back to the government.

If his plans change and he does come back to New Zealand at some stage in the future he can re-join KiwiSaver, but he won't get another $1000 kick-start.

Note that many workplaces in the UK offer private pension schemes to employees.

If your son does contribute to a private pension scheme while he is in the UK, he may be able to transfer his savings to his KiwiSaver scheme when he comes back to New Zealand.

The New Zealand scheme needs to be a Qualifying Recognised Overseas Pension Scheme (QROPS for short).

There are advantages and disadvantages of making a UK pension transfer - these are outlined on our website at http://www.gmi.co.nz/191/uk-pension-transfer-to-nz.aspx.

Transferring UK pension plan funds is an important decision.

There may be tax implications.

We recommend that people discuss proposed transfers with their UK and New Zealand tax advisers as well as their UK pension provider.

• Joe Bishop, Kiwibank head of wealth products.

I was disappointed to read in the paper the facts regarding the use of Aussie super transferred to New Zealand.

I was really hoping to access it when trying to enter the Auckland property market (as I was in Aussie for 12 years, so there's a little bit there).

Will there be any way around this situation at all?

I mean the money belongs to me!

It was worked for as part of my wages.

Is there anyone we can lobby for a change in policy?

Why did the New Zealand Government put this rule of no access in place?

The answer provided in last week's KiwiSaver Q&A is correct.

While there are some benefits available for being part of KiwiSaver, like the first home buyers scheme, it was primarily set up as a voluntary, work-based savings initiative to help with long-term saving for retirement.

There are some differences in treatment for Australian-sourced retirement savings transferred to a New Zealand KiwiSaver scheme under the transtasman portability scheme as outlined below:

•Australian-sourced retirement savings which are held in KiwiSaver can be withdrawn at age 60 if the member is retired (as defined in regulation 6.01(7) of the Superannuation Industry (Supervision) Regulations 1994 (Aust)).

•Australian-sourced savings held in KiwiSaver will not be able to be used for any of the KiwiSaver housing-related initiatives.

The arrangement prescribes that transferred savings cannot be withdrawn to assist with the purchase of a first home.

However, any earnings on Australian-sourced savings may be withdrawn for the purchase of a first home.

The reason for these differences is to protect the integrity of the respective superannuation regimes in each country.

So funds transferred from Australia will not be able to be used to buy a first home, as this is consistent with Australia's policy regarding superannuation funds.

The link below should also be of help.

http://taxpolicy.ird.govt.nz/news/2009-07-16-super-portability-agreement-signed.

As for who you could lobby for change, Malcolm Menzies, research manager at the Commission for Financial Literacy and Retirement Income and leading the Review of Retirement Income Policy, says there is an option to make a submission to the Review of Retirement Income Policy being conducted this month by the Commission for Financial Literacy and Retirement Income - submissions are open until May 31.

The review is interested in any issues regarding retirement income policy.

You can email a submission to 2013review@cflri.org.nz

• IRD spokesperson.

• 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

Helen Twose

Personal finance and KiwiSaver columnist at the NZ Herald

Helen Twose is a freelance business journalist who writes regularly about KiwiSaver and entrepreneurial companies. She has written for the Business Herald since 2006, covering the telecommunications sector, but has more recently focused on personal finance and profiling successful businesses.

Read more by Helen Twose

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