Q My son is currently on a KiwiSaver contributions holiday while he focuses on reducing his mortgage. His employer is one of those who does not give him an extra 3per cent, he takes the employer contribution out of his wages. So taking a contributions holiday effectively gives him an extra 6per cent before tax. However, he does miss out on the government contribution. Can he pay $1042 to his KiwiSaver provider directly to get the full top up?
A This is a timely reminder for all KiwiSaver members over 18 and under 65 to check if they have contributed enough to get the full government top up of $521, before June 30.
Every dollar that eligible members contribute up to $1042 will entitle them to 50c from the government.
Your provider can tell you how much you have contributed, or you can work it out yourself if you add up all the employee contributions since July 1, 2021. You can also go online and check in your My IR account. Self-employed members who are making payments directly from their bank account can add up their contributions themselves.
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Your son can certainly make voluntary payments directly into his KiwiSaver account. Paying in $1042 to get the government top up of $521 will give him a better 'return' than putting that amount on his mortgage. He needs to do this before June 30 to make sure that the money reaches his provider in time. It is easy to make the payment by internet banking.
As he is nearly out of time, it would be best to pay via IRD (select KSS from the drop-down box under tax payments) before midnight on June 30. He will need to provide his name and IRD number. If paying to his provider, he should do this a few days before June 30 to allow the funds to be processed and he should provide his name, member number and IRD number under payee details.
Unless someone is on the minimum wage, it is not illegal for an employer to include employer contributions in a wage agreement. Section 101B(4) of the KiwiSaver Act allows employer contributions to be bundled into employees' pay under "total remuneration" agreements, if the parties have entered into the agreement after December 13, 2007 and where the agreement accounts for the employer contributions in the employee's pay.
While the 3per cent employer contribution may be a burden on some employers, bundling it into the employees' pay does discourage some workers from joining KiwiSaver. People like your son will not enjoy the quiet satisfaction of a growing KiwiSaver balance with every pay cycle.
There must be many workers who after a hard day at work take comfort and satisfaction from the fact that they are salting away a nest egg. As the years go by and the numbers grow, KiwiSaver members will be able to do some serious planning with their savings. A 40-year-old earning $60,000 pa and contributing 3per cent could see their KiwiSaver grow from say $30,000 today to $300,000 or more at age 65.
Your son has made the decision that he is better off repaying his mortgage than contributing to KiwiSaver. If his cashflow improves he can resume his KiwiSaver contributions at any time, he does not have to wait till the end of his savings suspension.
According to Inland Revenue's KiwiSaver website: "You can restart your contributions before your savings suspension expires, just ask your employer to restart deductions from your pay."
- •Shelley Hanna is the communications manager with Peak Portfolio Management Ltd which is a Financial Advice Provider licensed by the Financial Markets Authority. Disclosure information is available at www.peak.net.nz or call 06 8703838. The information provided in this article is of a general nature and should not be relied on as a recommendation to invest in a financial product. Send your KiwiSaver questions to firstname.lastname@example.org