Shelley Hanna: Make mature decision on KiwiSaver

QUESTION: Regarding your article in HB Today last week, can you please confirm for me that when you have been in the Scheme for five years and you are over 65 years of age that the Government stops the "tax credit" contributions of $521 per year? What would happen if my maturity date is in December and I cash up my KiwiSaver - would I get the tax credits owing to date?

ANSWER: You will no longer be entitled to the Member Tax Credit (or MTC) once you reach the Maturity Date (in the Scheme for five years and turning 65).

The KiwiSaver year runs from July 1 to June 30. The administration manager for each scheme submits information to Inland Revenue in July each year, claiming the MTC on behalf of investors. That money gets paid into each investor's KiwiSaver account.

The MTC is based on the amount contributed each year by the member (not employer contributions) up to a maximum of $521 for contributions of $1042 or more. (For those readers who are still confused by the term, the Member Tax Credit is an actual payment to all eligible KiwiSaver members from the Government every year.)

If any member join the scheme during the year, they are only entitled to a proportion. If they make no payments into their scheme during the year, they do not receive any MTC.

New Zealanders under the age of 18 or living overseas are not entitled to any MTC, and it is up to the administration manager to identify those people. Likewise, those who have reached the Maturity Date during the KiwiSaver year will only be entitled to MTC for the proportion of the year up to that date.

So reaching the Maturity Date will be the reverse of turning 18 - if anyone turns 18 during the year and they are contributing to KiwiSaver, they get MTC for the portion of the year after their birthday. If they reach the 65 year/five-year Maturity Date during the KiwiSaver year, their payment will be calculated based on how much they contributed in the months leading up to their Maturity Date. Contributing $90 per month for six months should entitle them to about $260.

What if you reach the Maturity Date and cash up your KiwiSaver account halfway through the KiwiSaver year?

I put the question to David Boyle, general manager funds management at ANZ Wealth/One Path.

He said that investors wishing to cash up their KiwiSaver Scheme at the Maturity Date will need to fill out a Notice of Withdrawal form.

The information will go to Inland Revenue who will do a final reconciliation and apportion any MTC owing at the time of closure, so investors will not have to wait until the end of the KiwiSaver year in July for that final payment.

Because we still have six months to go before the first investors reach their Maturity Date, final details of the withdrawal process are still being worked out by the fund managers and Inland Revenue.

To find out more, go to your fund's investment statement and look for the section entitled "How do I cash in my investment?" Most fund managers will have a Scheme Withdrawal Form. You don't have to withdraw the money; many investors will be happy to leave it "for a rainy day". Just make sure that you are in the right fund for your timeframe and your age.

Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 8703838. The information contained in this article is of a general nature and is not intended to provide specific or personalised advice. If readers have any KiwiSaver questions, go to www.peak.net.nz or email shelley.hanna@peak.net.nz