How can we help our daughter, who is on a benefit, to start KiwiSaver? Photo / 123RF
THREE KEY FACTS:
Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance.
OPINION
Q: Our daughter is in her 40s, and due to ongoing health issues has been for some time on a Work and Income benefit. She has no assets or extra money. We are in our early 70s, not well-off by any means.
Her sisters and brothers will survive I am sure, and all have KiwiSaver. Would we be able to start a KiwiSaver account for our daughter by gifting her say $5000?
How much would she have to contribute to keep it going each week?
Also would Work and Income see this as an asset and make her use this money? It’s a worry where someone like her will end up.
A: Your plan looks good. “Money paid directly into a KiwiSaver account which is “locked-in” (i.e. the person can’t access the funds until they are 65), does not impact a person’s benefit,” says Jayne Russell of the Ministry of Social Development. “It is not treated as a cash asset, and any interest earned from the KiwiSaver fund is not considered income.”
“There is no expectation for a client to withdraw funds from a KiwiSaver account before someone applies for MSD assistance unless the funds are not locked in, for example, if they are over 65,” says Russell.
Your daughter will need to sign up for KiwiSaver, but she doesn’t need to deposit anything. Then I suggest you deposit $1042 each year for five years – which totals $5210. That way, she will receive the maximum $521 government contribution for each of those years. If you deposit it all at once, she’ll get just one $521 in the first year.
In the meantime, it would be wise not to park the rest of the money in your daughter’s bank account. While most main benefits are not asset-tested, “benefits granted on the ground of hardship or the Emergency Benefit may include income and asset tests to check a person’s eligibility. A lump sum payment gifted to a person’s bank account would generally be treated as a cash asset,” says Russell.
“Cash assets can also affect some extra MSD assistance, such as Accommodation Supplement and hardship assistance like a Special Needs Grant and Housing Support Products.”
What about when your daughter turns 65? Says Russell, “Clients who are able to access their KiwiSaver (e.g. when they turn 65) will have these funds treated as a cash asset (or income where appropriate) when assessing whether someone can get benefits and other MSD assistance.”
But at that point, your daughter will be getting NZ Super, and that is not affected by any assets she holds.
There’s no requirement for your daughter to make ongoing contributions. However, if she sets up an automatic payment of, say, $5 or $10 a week – the provider can tell her how to do that – she will keep receiving a government contribution each year of 50 cents for every dollar deposited. That will add up over the years.
What would really help her, though, would be the Government’s adoption of a KiwiSaver recommendation in the Retirement Commission’s 2019 Review of Retirement Income Policies.
It recommends the auto-enrolment of all beneficiaries into KiwiSaver, with the Government making regular “employer” contributions of 3% of their benefits. This would be on top of current benefit payments, and beneficiaries would not be expected to contribute themselves.
Says the Review, “We think that this 3% contribution would be fairly modest in cost terms to the Government, as at jobseeker rates of $245 per week, or $12,740 per year, 3% would be in the order of $382 per year per member, at a total annual cost to the taxpayer of around $114 million.”
Those are 2019 figures. The benefit has risen somewhat since then, and the numbers on a benefit have probably increased, so the total might be, say, $200 million. That’s only about 5% of the annual cost of the tax breaks coming up.
The recommendation continues, “We know that KiwiSaver exacerbates the wealth gap over time, as some New Zealanders can’t afford to save and so miss out on the compounding benefit of saving even a small amount of money over time. … We believe that targeted incentives would improve the chances of some of the most vulnerable New Zealanders being able to have a pool of savings to supplement their income in retirement.”
A change like this could really help people like your daughter feel part of mainstream New Zealand society, with a future to plan for. How about it, Government?
P.S. I should disclose I was part of the team that wrote that Retirement Commission recommendation. It’s the one KiwiSaver change I most want to see.
Q: We’ve bought my wife’s parents’ house. They had a small mortgage on it, with no income, just super, coming in. They didn’t have enough money to keep paying the mortgage, hence they were going to start a reverse mortgage to keep things afloat.
If they sold the house they would’ve struggled to get into a retirement village and stay near family etc. So we bought the house so they don’t ever have to leave - so let’s say they will be there for at least another 10 years.
They pay us $750 rent per week. We took out a 30-year $800,000 mortgage, with just the interest on it at $1977 a fortnight, so we are topping up mortgage payments as the rent does not cover it. We also pay the rates, insurance and any maintenance costs.
How do we treat this in terms of any possible tax or claims as such? I’m not sure it would be worth declaring as a rental, as bought after the law change, but see they are bringing back interest as claimable. But then we’d have to pay tax on the rent they pay presumably? Do we have to do this? Can we just keep it under the radar from IR bandits?
We’re just doing the right thing by our parents so they have comfortable carefree remaining years. We are unsure what we will do with the house later, maybe keep it or pass it on to children?
I’m 55, (no mortgage on our house) sole income earner. In hindsight, this was maybe not our best idea financially, but I know more about property than shares so hoping it will all pan out.
A: “This is a really interesting scenario,” says tax expert Terry Baucher of Baucher Consulting. “And one which I think we will see more frequently as the population ages.”
Is the situation any different - taxwise - from what happens for landlords renting to a non-family member?
Says an Inland Revenue spokesperson, “Normally income that you receive from renting out property will be liable for income tax, so you must include it in your tax return.
“Sometimes your allowable rental expenses for your residential rental property are more than the rental income. When this happens you have excess deductions. Generally, you cannot offset excess deductions against other income, such as salary and wages, in your tax return. You’ll need to carry excess deductions forward into the next tax year you earn residential rental income.”
What about your rather unusual situation? “If you rent your property out for less than the market rental value, for example, to a relative or friend at mates’ rates, and you still make a profit from it, the profit is taxable as part of your income,” says the spokesperson. “But if you make a loss in this situation because the expenses of the property are more than the reduced rental income, you generally will not be able to deduct expenses more than the amount of income you received.”
For more info, see IRD’s guide called IR264 Rental Income or go to tinyurl.com/IRDRentNZ.
Baucher gave similar advice. Okay, I said to him, given the reader is making a loss on the property, won’t they end up paying no tax anyway? So can’t they just ignore tax?
His reply: “As you point out the net effect is almost certainly nil. However, I’m very, very reluctant to say it can be safely ignored for tax purposes because we don’t know the full circumstances (and my experience is that sometimes important details are overlooked). The safest approach would be to declare the income, even though it appears likely to have no net effect. With tax, it pays to be cautious.”
By the way, it’s not really fair to call IRD bandits! None of us would get far if we didn’t have all the services paid for by our taxes.
Q: In reply to a recent letter, you wrote, “… hiring a good financial adviser – one whose only income comes from clients as opposed to from fund managers and others ... .”
Where does one look to find a good financial adviser? This year our financial status is changing, and we need to make good financial decisions.
A: Until three years ago, I ran a list on my website of financial advisers who make money from client payments only. Since then, that list has been run by MoneyHub. You can see it here: tinyurl.com/AdvisersNZ .
Please read all the important info above the list, and especially this: “The work of these advisers has not been checked by Mary Holm and/or MoneyHub. They have simply said they comply with the rules about fees.”
I suggest you interview several advisers on the list. You’re hiring them for the job of looking after your money.
Q: To the patronising idiot who said in your column last week that Lotto is a tax on stupidity, my friend and I each spend $6 a week on a Lotto ticket. We have won up to $1000, but that is really not the point. We often discuss what we would do with the winnings and have jokingly comprehensive lists that are a bright spot when our days are not.
Will we ever win a major prize? Probably not, but $6 is a very small cost for the fun - less than a cup of coffee and healthier than a bar of chocolate. It does not prevent us from feeding our families or paying our mortgages. I am, obviously, not advocating spending money you cannot afford, but finding small joys in our days is a much better use of our time than sneering at people who do.
A: Fair point. Bright spots and small joys are important.
Q: Just a thought on the Lotto investments. I buy with the hope of getting a little surprise payout. The anticipation of thinking and dreaming about what I’ll spend the money on is worth it. That is the dream.
The reality? I’m contributing to a great way of giving money to so many deserving charities. That for me is the best investment I could make. Thanks for your continued down to earth advice and dose of humour that goes with it. There isn’t a week’s column that I read that I don’t have a chuckle!
A: I usually edit out kind comments about the column, but I liked yours too much! Thanks. I do try to lighten up what can be a rather stodgy topic.
Another reader made a similar comment to yours about Lotto: “A large portion of the Lotto ticket takings go back to the community in the form of grants. Without Lotto, a large portion of charities would not be able to provide the service and assistance to others within our communities.”
Sorry to be a wet blanket, but only 25 cents of every dollar spent on Lotto goes to grants. Fifty-three cents goes to prizes, 12 cents to tax, and the rest to expenses.
The sad fact is that your charity dollars would go a lot further – and you could pick the organisations you value most – if you gave to them directly. But then you’d miss out on “the dream”. And – as noted in the Q&A above - that’s not nothing.
Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions do not reflect the position of any organisation in which she holds office. Mary’s 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 click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.
'I don’t remember a time where people have asked me more redundancy questions.'