Q I haven't got round to joining KiwiSaver yet. I've been told the Government contributions have been cut in half and the employer contributions are no longer tax-free. Is it still worth joining up? I am 34 and earn $42,000 per annum.
A You are not alone in procrastinating around KiwiSaver, and like many others you have been missing out on some generous incentives. But better late than never.
You are quite right - the Member Tax Credits (MTC) have been reduced from a maximum of $1042 to $521 per year, and employer contributions will be subject to ESCT tax from April 1, 2012. However, you will get the $1000 "kick start" from the Government when you join KiwiSaver, and the MTC and employer contributions are still worth having.
In order to get the full MTC of $521 you need to contribute $1042 yourself over the 12 months to June 30 each year. On your current salary you will be short by around $200. Some fund managers write to their members to let them know that there is a shortfall and you can top it up yourself.
From April 1 your employer's contributions will be subject to tax (either at your marginal tax rate or a flat rate of 33 per cent). Taxed or not they are still worth having.
On your current salary you will get around $693 per year in employer contributions (after tax) and $420 in MTC, which you won't get if you don't join KiwiSaver. From April 1, 2013 your employer contributions will be going up to 3 per cent (as will yours) so your employer will be paying another $350 into your scheme. It all adds up.
And don't forget the "kickstart". This is the dangly carrot that the Labour Government felt was necessary to entice reluctant savers into the scheme. I don't know if the country can afford to pay every new KiwiSaver member $1000 but as long as it is still available it provides a very good incentive.
It is easy to join KiwiSaver - just tell your employer. Or download a KS2 form from the Inland Revenue website, fill it out and give it to your employer. If that is all you do, you will go into a default scheme and a conservative fund. This may not be your best option long term, but it will get you started . If you want to find a scheme and fund suited to your age, risk profile and any personal investment preferences you may have, then you should talk to an authorised financial adviser.
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 they would like answered please go to www.peak.net.nz or email shelley.hanna@peak.net.nz.