Helen Twose: KiwiSaver funds mostly safe from creditors

Your first home withdrawal can be made up of your contributions, plus contributions from your employer, plus any investment earnings achieved by your KiwiSaver savings. Photo / Duncan Brown

But change to legislation would be needed to prevent possible release if formal procedures are launched.

I am a KiwiSaver member and small business owner.
I believe that business owners with KiwiSaver balances put their retirement savings at risk every day from creditors, under current legislation. This risk rises as member balances rise.
Within reason, I would like KiwiSaver members to be able to protect their superannuation benefits from creditors.
Are you aware of any options KiwiSaver members can take to secure their savings from potential creditors?
Personally I believe this is an issue the government should be considering in future KiwiSaver legislation review.

If the scheme member is not eligible to withdraw funds under the rules of the KiwiSaver scheme, the trustee of the scheme is under no obligation to release the funds to the Official Assignee (OA) until such time as the member becomes eligible.

The OA is also generally unable to claim a payment under the significant financial hardship provisions of the scheme's trust deed.

What is still not clear is the OA's interest post discharge from bankruptcy.

No precedent has yet been set.
•Sarah Mitchell, Milford Asset Management retail product manager.

•PwC director Ian Rowe adds: A member's KiwiSaver balance is unlikely to be at risk from creditors unless formal procedures were under way, such as bankruptcy, no asset procedure or summary instalment orders.

A change to the KiwiSaver legislation as currently drafted would be needed to prevent a member's interest from possible release to creditors in these circumstances.

The New Zealand Government's desire for a change may depend on the incidence of members' interests being released to creditors together with the findings of the courts in considering challenges by KiwiSaver members to a potential release to creditors.

When withdrawing from KiwiSaver for a first home I know you can take out your contributions and your employer's.
Does this also include the member tax credits and investment earnings?

Your first home withdrawal can be made up of your contributions, plus contributions from your employer, plus any investment earnings achieved by your KiwiSaver savings.

You are able to withdraw all or part of this accumulated amount.

You will not, however, be able to withdraw the government's $1000 kick-start contribution or member tax credits you have received.
•Martin Lewington, Mercer New Zealand head.

I am trying to understand how matching member tax credit works for members who live overseas part of the year. Can you please confirm my understanding of the following scenarios.
Scenario one: KiwiSaver member lived overseas July 1, 2012 to October 1, 2012.
The member makes regular, voluntary contributions of $40 per fortnight.
My understanding is that the customer will get $520 matching member tax credit.
Scenario two: KiwiSaver member lived overseas July 1, 2012 to March 1, 2013.
The member makes regular voluntary contributions of $40 per fortnight.
My understanding is that the customer will not get a matching member tax credit as the customer lived overseas for more than 183 days during the year.
If the customer has been overpaid for member tax credit, does the customer need to inform IRD?

A member tax credit (MTC) is calculated using three variables: the member's eligibility status, the amount contributed and the proportion of the year the member was within New Zealand.

If the member is eligible for a portion of the KiwiSaver year (as opposed to the full year), their MTC eligibility will be prorated based on that portion of a year - for instance, if you became eligible halfway through a KiwiSaver year, your MTC consideration would only be for half of the KiwiSaver year (meaning you can only get a maximum of $260.71 of MTC).

Likewise, if you spent time outside of New Zealand for a portion of the year, your MTC consideration will be prorated based on the amount of time you were residing in New Zealand for that year.

The amount a member contributes can be matched by the government up to $521.43, with 50c to the dollar of the member's contributions (up to $1043.86), provided there is no eligibility or residency pro-rating.

When a member moves overseas they must advise their KiwiSaver provider as this will impact their MTC eligibility.

In scenario one above, even though a member would have paid the full $1042.86 contribution over the course of the year, they would not have been eligible for the full $521.43 consideration as a portion of the year would have been spent living overseas.

In scenario two, the 183 days has no specific bearing on MTC consideration.

MTC does have a residency requirement, however the 183 day threshold does not impact the calculation (as it may with other tax issues, for instance around residency).

The MTC consideration would still be prorated based on the proportion of the year the member was in New Zealand.

If a member has found that they have been overpaid an MTC, they need to advise their KiwiSaver provider, who can recalculate the eligible amount and send a message to IRD to pull back part of the MTC from the client's account.
•Sarah Mitchell, Milford Asset Management retail product manager.

•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, helentwose@gmail.com.