Kiwisaver Changes – Arggghhhh
Filed under: General Budgeting, Jobs & Work, Life in New Zealand, Property & General Investing, Retirement, Pensions and Kiwisaver, The Book and Website
I’m so glad that I made a disclaimer in my book about the need to be aware of things like taxes changing –it seems- at the drop of a hat right now.
No sooner had I agreed on the final edit of the book – Wham – the new government brings in new Tax Rates – and even worse – new Kiwisaver rules.
So – what is the deal – and what does it mean for everyone who lives or wants to live in New Zealand.
Firstly Kiwisaver. As of April 2009 – you will be able to contribute a minimum of 2% of your gross salary, instead of the current minimum of 4%. For many people – this is actually good news – as it means you will not be losing 5.6% of your take home pay if you want to join Kiwisaver. You still lose more than 2% – but hey – it’s going in the right direction for some people. It should actually mean that more people choose to join Kiwisaver because it won’t now hit their pockets so much. As someone who was new to saving money for the future – it is a big hit to lose 5%+ of your pay cheque.
(You can read “What Is Kiwisaver” in Avalon’s Guide to find out about how much you really pay into Kiwisaver).
On the other hand – this now means that people need to earn a minimum of $52,000 a year in order to be able to contribute 2% of their salary and still get the Maximum $20 a week tax credit. Under the old rules – People earning just $26,000 a year would get the maximum as 4% of $26,000 gives the same weekly contribution as 2% of $52,000.
However – the government has said that it will match any contributions for people affected by this on a $ for $ basis. This means that someone earning $26,000 and contributing 2% will be paying $10 a week into Kiwisaver. They will only get $10 a week tax credit from the government. So the government has now said (if I’ve read the very boring blurb correctly), that if the person earning $26,000 chooses to pay more than 2% – the government will also pay more – up to the maximum of $1043 a year.
On the other hand – the new rules also mean you lose the $40 a year fee subsidy, so now you have to pay all your fees yourself. Do make sure you read the (usually rather dull) investment statement you should get when you are looking at providers to find out how much you have to stump up. I actually don’t think the $40 would make a huge difference anyway.
Also, employer’s mandatory contributions are now topped at 2%, and they lose their $20 a week tax credit to help fund it.
So – why are these changes happening? Well, it appears that when you look at who joins Kiwisaver – there is a huge difference in take up when you hit the $50,000 salary bracket – with people earning less than that not joining. These changes are designed to encourage people earning less than that to join up by not requiring them to lose as much of their take home pay. I know I have friends who would join – but felt that they could not manage that kind of contribution. Some financial advisors have found the same with their clients.
It should in theory allow lower income workers to start saving something – which has to be better than having no savings at all. Time will tell if this really works.
Bear in mind that all the calculators do not show these new rates yet, and that you can still choose to contribute 4% or 8% of you wish.
I’ll save the Tax Rate changes for another Blog – too much in one can hit might have you all running away screaming.
Related posts:
- Kiwisaver Problems: keep your eye on your provider.
- New Kiwisaver Rules: what the hell?
- Lower taxes come to New Zealand
Comments
One Comment on Kiwisaver Changes – Arggghhhh
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Hubby on
Wed, 24th Jun 2009 8:53 pm
It also looks like mortgage diversion has been removed from your options – see this blog entry;
http://www.mortgagemax.co.nz/blog/?p=32
and the official wording;
http://www.kiwisaver.govt.nz/benefits/benefits/
http://www.beehive.govt.nz/release/kiwisaver+mortgage+diversion+be+closed
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