KEY POINTS:
Q. Currently if you are unemployed, self-employed, a low wage earner etc, you can deposit up to $20 a week into KiwiSaver and have the Government match it dollar for dollar.
My reading of National's proposed changes is that this benefit will be lost. Is that correct?
A. You're probably getting muddled with the employer tax credit, which will end.
Nobody will lose the member tax credit but in the one clearly bad feature of National's KiwiSaver policy, the tax credit for employees will be capped at 2 per cent of their pay.
Q. National's KiwiSaver policy document doesn't make it clear that it will treat employed KiwiSaver members differently to self-employed and unemployed ones in regards to the government contribution.
The policy document says it will match KiwiSavers' contributions "at the minimum contribution rate, up to a maximum of $1040 a year".
The minimum contribution is $0 for self-employed KiwiSaver members.
A. The wording is poor. But Bill English assures me that there will be "no policy change for self-employed. They still get the credit."
Q. I am self-employed, with a minor casual PAYE job. A few months ago my hours in the PAYE job halved, meaning my KiwiSaver contributions also halved.
I figured that come March next year I'd simply put in more to bring my total annual contribution back up to $1040 to bag the full tax credit.
After reading National's proposal I have been left confused. If I bump my contributions up as planned, will I be eligible for the full tax credit?
Or will my tax credit be calculated purely on 2 per cent of my PAYE earnings?
If it's the 2 per cent option, it makes the scheme a hell of a lot less attractive - still worth being in, but not worth making the additional payments into.
A. I'm afraid it's the 2 per cent only. If you are in a PAYE job, no matter how small, National will limit your tax credit to 2 per cent of your PAYE pay.
This might even motivate some part-time workers to quit their jobs. But then what?
Let's say they worked for only a week, earning $200, and then quit. Would their tax credit be limited to 2 per cent of that, or $4, whereas if they hadn't had that job they could get a $1040 tax credit? Surely not.
Comments Michael Littlewood, of the University of Auckland's Retirement Policy and Research Centre: "It's clear that some of the detail on National's proposed changes has not been thought through, and that's because it has been developed in secret."
People in the know say this aspect of National's policy will be changed.
Q. In the past I have agreed with most of what you have written about KiwiSaver. So I'm not sure how you can get it so wrong regarding the National Party's blatant attack on KiwiSaver.
You state that their policy wouldn't have much of an effect on KiwiSaver. However, when you take into account the lower employer contributions and that these contributions can be offset against wage increases, the advantage to the employee from the employer is nil!
The only additional contribution is the government tax credit.
Perhaps you need to take off your blue-tinted glasses and have a closer look at how easily National changes the rules when it suits them. My money in KiwiSaver is locked in until I'm 65. However, I will be re-assessing whether I continue to lock away money should National win the election.
A. Fair enough. But if you stop contributing you will miss out on some incentives, albeit not as generous as now.
I didn't say National's changes wouldn't have much effect. Just that KiwiSaver is still probably the best way for most New Zealanders to save. And for the self-employed and non-employees, it's as good as ever.
For employees, the situation is mixed. Those who can't afford 4 per cent of pay or are reluctant to tie up that much will benefit from the 2 per cent option.
On employer contributions, National's policy of holding them at 2 per cent clearly disadvantages employees.
But arguably they are currently getting too much from KiwiSaver, at the expense of other taxpayers.
Where things get tricky is when employer contributions will be offset against wage increases under changes proposed by National.
In effect, KiwiSaver employees would pay their own employer contributions by foregoing pay rises.
This could happen only if it was "negotiated between employers and employees in good faith", says National. And some employers won't want to do it anyway, as they are keen to encourage their workers to save. But it could happen in a workplace with few KiwiSaver members.
Assuming the employer has a fixed labour budget, non-KiwiSavers will get more if KiwiSavers get less. And many would say that's fair.
The trouble is that if the tax credit for those KiwiSavers is limited to 2 per cent of their pay, lower-paid workers would see little advantage in KiwiSaver.
That's another reason the 2 per cent limit must change.
In response to your comment about National's changing the rules, may I suggest you take off your red-tinted glasses and recall who radically changed the scheme only six weeks before it took effect?
* For more answers to reader letters, see my Money column in the Weekend Herald.
Mary Holm is a seminar presenter and author. Her website is www.maryholm.com. Her advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.
