Kiwisaver: Young partner cuts Super

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Q: I am retiring later this year, but my wife will be under 65 and so our separate pensions from Work and Income will be means tested. If I leave my KiwiSaver in and only draw a weekly payment, will the money in my KiwiSaver account be regarded as an asset for my pension from Work and Income?

A: It's a good time to do a spot of planning to ensure your savings, including KiwiSaver, last the distance through retirement.

For those who aren't familiar with New Zealand Super, when your partner is under-65 you have two options:

You can receive half the married couple rate for the pension, which works out at $326.30 each week, until your partner also reaches 65;

Or, both of you can get the non-qualified spouse rate (currently $309.04 each a week), subject to an income test. Payments are made fortnightly with tax deducted.

Applying for Super when your spouse is under 65 could be a good option if the retiree is the household's main or sole breadwinner.

The Ministry of Social Development, which oversees New Zealand Super, says income testing, but not asset testing, is applied to the main benefits paid by the Government, including New Zealand Superannuation.

Income could be wages, bank interest, investments, rental income, dividends from shares or income from trusts, but income you have divested yourself of may also be investigated.

While it's locked up, KiwiSaver isn't treated as an asset and the investment earnings don't count as income.

This all changes once you are eligible to access your KiwiSaver funds at 65 or older.

"From this point, KiwiSaver funds are considered an asset and income earned within the fund is chargeable income," says the Ministry of Social Development.

"Lump sums withdrawn from KiwiSaver at age 65 or later are not considered income, but depending on the use to which those funds are put, they may be considered an asset."

In your situation the ministry says any investment earnings on your KiwiSaver money would be considered income if you chose to include your wife as a non-qualified partner in your NZ Super.

But because the funds in your KiwiSaver account are assets, and NZ Super isn't asset tested, this money isn't part of the calculation for determining the amount of Super you'll get if you include your non-qualifying partner.

If you include your younger partner in your Super, you can have combined other income of up to $5200 (before tax) a year before your NZ Super is affected.

If you earn more than this, 70c will be taken off your payments for each dollar of income over this limit.

"Depending on the total income of the couple (for example, income from employment or investments), it may be advantageous to not include the non-qualified partner," says the Ministry of Social Development.

"The qualifying partner can then receive the married person rate of New Zealand Superannuation, without an income test.

"This would be the best course of action if the couple's combined total income (including income earned within the qualifying partner's KiwiSaver scheme, but not including their New Zealand Superannuation) exceeds $26,875 gross per annum."

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 NZ Herald's panel of industry players, email Helen Twose.
Helen cannot answer all questions, correspond directly with readers, or give financial advice.