Money Editor for NZ Herald

Tamsyn Parker: KiwiSaver jargon you need to know

KiwiSaver jargon can be a tough road to navigate. Photo/ Steven McNicholl.
KiwiSaver jargon can be a tough road to navigate. Photo/ Steven McNicholl.

I've just received my annual statement from my KiwiSaver provider in the post.

Given I've lost my internet password and haven't logged on to my account for a while the first thing I rushed to check was how much do I now have saved towards my retirement.

Okay so it's up about $5000 on last year - not great but not bad - was my first thought.

Then a secondary thought after looking at the whole balance was - wouldn't it be nice if that money was paid off my gigantic mortgage instead?

Added to my husband's KiwiSaver balance it would make quite a dent and definitely reduce the financial pressure right now.

Then again (though it seems a long way away at this stage) I also don't want to live like a pauper in retirement and let's face it my KiwiSaver balance wouldn't be this high without my employer contributions or the government's contributions.

Reading beyond the numbers I came across some words which are quite unique to KiwiSaver.

First my KiwiSaver provider was crowing about being reappointed as a KiwiSaver default provider.

Usually the word default and finance don't make for a happy association - as anyone who hasn't paid a loan or bill on time knows.

But in the case of KiwiSaver, default provider isn't a reason to run a mile.

It simply refers to a group of companies which the government has selected to run funds where people who do not choose a KiwiSaver provider will have their money put.

There are currently five companies which run default funds - AMP, ASB, ANZ, Fisher Funds and Mercer - but from July 1 a further four are being added - BNZ, Westpac, Kiwibank and Grosvenor.

The allocation is done at random and despite the perception, the government provides no guarantees on these funds or the companies running them.

Default funds must invest 15 to 25 per cent of their money into growth assets such as shares and property.

That means the majority of your money will be invested in cash and fixed interest investments like bonds and because of this are seen as a conservative or a lower risk place to invest money.

The government views the default funds as a holding place and anyone automatically put into one should consider if it is right for them.

Money website Sorted has a tool to help people figure out what sort of fund they should be in.

My provider then wanted to know if was on the right PIR or prescribed investor rate - eek this sounded complicated but actually it's just the tax rate on my investments.

Just like personal tax there are different rates of tax for your KiwiSaver investments depending on what you earn.

Working out what rate you should be on can be done easily on the Inland Revenue website.

Then it's just a matter of letting your KiwiSaver provider know.

If you have changed income recently it pays to check you are on the right rate.

No one wants to pay more tax than they have to.

As well as my account summary I also received a tax summary for my portfolio investment entity or PIE.

This is about as far from the meat-filled pastry Kiwis love to eat as you can get.

PIEs in the KiwiSaver sense describe the type of investment vehicle your money is in.

They were created in October 2007 - the same time at which KiwiSaver schemes received their first allocations of money from the Inland Revenue and began to invest it.

Most KiwiSaver schemes are PIEs which means they pay tax on the investment income based on the prescribed investor rate of their investors rather than at a tax rate for the entire entity.

Outside of KiwiSaver other investments can also be set up as PIEs.

People with money in these PIEs need to take into account any income from them when it comes to certain benefits and student loans.

The Inland Revenue has more details about that here.

The good news or so my provider tells me is that I can now get more information about my KiwiSaver fund through a QDS or quarterly disclosure statement.

These new reports are due out at the end of March, June, September and December and have information about a fund's performance and returns, fees and costs, where the money has been invested and the people who look after it.

The reports are not sent out to members but can be accessed on your KiwiSaver provider's website.

The best part about them is that they have to be reported in a standardised way which makes it easier to compare your fund to others.

This means you can compare the performance returns and fees. But be careful to ensure you are comparing similar funds.

The Sorted website has a handy tool which allows you to do this easily.

Despite having tax in the name this phrase is actually good news for savers because it's the free money the government will give to you every year if you personally contribute to KiwiSaver.

For every dollar you put in up to $1043 the government gives you 50c up to a maximum of $521.43 per year.

The year is based on the KiwiSaver year so you need to ensure you have put in at least $1043 by June 30 or mid June to be safe to get the full government contribution.

If you haven't put in the full amount you can top it up through the Inland Revenue and get the full amount as long as you have been in KiwiSaver for the full year to June 30.

In response to some questions about how to top it up:

You can find out how to make voluntary contributions to the Inland Revenue here.

You can also make top-up contributions directly to your KiwiSaver provider. Contact them to find out how.

For more information on member tax credits see the government's KiwiSaver website here.

Do you have any KiwiSaver jargon you want explained?
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- NZ Herald

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Money Editor for NZ Herald

Tamsyn Parker is the NZ Herald's Money Editor. A business journalist for ten years, she has worked in the UK and NZ for the New Zealand Herald, the National Business Review and a specialist publication on investment products for financial advisors. She is passionate about helping readers learn more about to make their money work for them.

Read more by Tamsyn Parker

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