Helen Twose 's Opinion

Personal finance and KiwiSaver columnist at the NZ Herald

KiwiSaver: How good is it for children?

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KiwiSaver not the way to put something aside for education but it can work well for a first-home deposit.

Children can watch their KiwiSaver grow but don't have access to it to pay for study. Photo / Getty Images
Children can watch their KiwiSaver grow but don't have access to it to pay for study. Photo / Getty Images

I have just read the article on KiwiSaver being a great way to teach kids how to save.

And the $1000 kickstart from the Government and the tax credit also sound great.

Two questions: when can the kids withdraw money?

For example, Nikau decides he wants to study at 22 years after labouring and finally decides on what he wants to do: can he withdraw money to pay for tuition or is the money locked up to retirement?

Second, if we have a change of Government how secure is KiwiSaver?

A few weeks back ANZ Wealth managing director John Body described KiwiSaver as an excellent way to start your children's savings habit.

Kids will get the $1000 kickstart when the account is first opened, but aren't eligible for the annual $524 tax credit until they turn 18.

"The main benefit in setting up a KiwiSaver account for your children is giving them a head start in their savings and at some point they could be able to use some of the money in their account towards buying their first home," says Body.

He's referring to the ability to tap some of your KiwiSaver funds to put towards a first home after you've been in the scheme for three years.

This can either be using your contributions and investment returns towards the purchase price or getting help towards the deposit with the first-home deposit subsidy administered by Housing New Zealand.

Superlife principal Michael Chamberlain teases out more of the details around KiwiSaver for the under-18s:

"First let's look at the rules for children.

"There is no minimum age of eligibility and all children who meet the residency requirements and have an IRD number can join.

"Three months after they join, the $1000 kickstart is paid into their KiwiSaver account.

"There is no requirement for the child to save, or for the parents to save for them, unless they get a job in their first year's membership - then they must save 3 per cent.

"After their first year, they can go on a contributions holiday and therefore not have to contribute unless they want to, even if they become an employee.

"The next important rule is that they do not get the annual member tax credit of $521.43 until they are 18 or older.

"Therefore there are no additional government subsidies received by saving.

"The third important rule is that KiwiSaver is primarily for retirement.

"For a child this is a long way off but will come around quite quickly.

"The ability to take money out before retirement is limited.

"For children, the most likely scenario would be to help buy their first home, assuming that they meet the three years' membership test.

"Therefore parents should generally think twice about saving for a child in KiwiSaver before they reach 18.

"Any money saved is locked up until they buy their first house (or retirement).

"KiwiSaver is not a good vehicle, therefore, to save for a child's education.

"If a parent wishes to save for a child's future, particularly for education, they should save elsewhere.

"Many KiwiSaver scheme providers have other savings vehicles that will be suitable.

"Likewise many parents will save in a savings account at their bank.

"When my children were young, I saved on a monthly basis for them via my bank and when the savings reached $500 I went out and bought shares for them. Over the years this worked out very well because I was investing in shares for the long term and I kept costs to a minimum.

"Last, with KiwiSaver it must be remembered that the Government will always change the rules.

"It may be in the future that you can take money out of KiwiSaver for education but equally they may choose to limit what you can take out for buying your first home.

"It is the risk of government change that means saving for education and a deposit for a first home is probably best done outside KiwiSaver if you are under 18," says Chamberlain.

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.

- 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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