KiwiSaver is a compelling initiative by the Government that provides a number of incentives to help every New Zealander save for their retirement.
Contributions to your savings from the Government and your employer will help to grow your retirement nest-egg faster. The key incentives for individuals to join KiwiSaver are from the contributions gained from the Government and your employer.
When you first join KiwiSaver, the Government will give you a $1,000 kick-start in your first year.
Member tax credits
Subject to certain criteria, from age 18, you may receive member tax credits of up to 50 cents per dollar of qualifying member contributions up to $10 per week ($521.43 per annum).
From age 18, if you are employed and contributing to KiwiSaver your employer will generally contribute as well. Employer contributions will be 2% of your gross (pre-tax) salary or wages. The Government has announced a proposal that the compulsory minimum employer contribution rate will rise from 2% to 3% of the employee’s gross salary or wages with effect from 1 April 2013.
Tax exempt employer contributions
Compulsory employer contributions, of up to 2% of an employee’s gross salary or wages, are exempt from Employer Superannuation Contributions Tax (ESCT) until 31 March 2012, when these employer contributions will be subject to ESCT at the appropriate rate.
Withdrawal to buy your first home
After you have been contributing to KiwiSaver for three years you may be able to withdraw part (or all) of your contributions, and your employer contributions to buy your first home (not an investment property). However, your Government $1,000 kick-start and member tax credits cannot be withdrawn to buy your first home.
The Government may give you another $1,000 for every year you contribute to KiwiSaver (minimum 3 years or $3,000, maximum 5 years or $5,000) to go towards a deposit for your first home.
Entitlement to this subsidy will depend on your household income and the price of the home. The first home deposit subsidy is administered by Housing New Zealand.
Your KiwiSaver account stays with you
If you change jobs or leave the workforce, your KiwiSaver account goes with you.
After being a KiwiSaver member for 12 months, you can choose to take a break – called a contributions holiday. This can last between three months and five years. You can still contribute $1,042.86 each year in order to receive member tax credits of $521.43 p.a. from the Government.
If you are employed, you will need to contribute 2%, 4% or 8% of your gross (pre-tax) salary or wages that you earn at that job – this is deducted from your net (after tax) pay.
The Government has announced a proposal in the 2011 Budget that the minimum employee contribution rate will rise from 2% to 3% with effect from 1 April 2013. This will also be the default contribution rate.
If you are self employed or a non-worker, you can decide how much you contribute to KiwiSaver (certain conditions may apply, please see the relevant Investment Statement for details).
Benefits of KiwiSaver
- All contributions credited to your account, including Government contributions and your employer contributions, become yours at the expiry of the locked-in period.
- Your KiwiSaver account will be made up of contributions to your account, plus or minus investment returns, and minus any withdrawals, account fees and taxes.
- $1,000 kick start one-off contribution from the Government (generally takes 13 weeks to get into your new KiwiSaver account).
- Up to $521.43 p.a. tax credit contributions in each scheme year (1 July – 30 June) from the Government will be applied to your account if you are over 18. The Government will contribute 50 cents for every dollar you contribute UP TO a maximum of $521.43 p.a. – of course you have to be contributing to qualify for this.
- Employee (yours!) mimimum contributions are 2% of gross salary, and contributions must be made for 12 months. After that time you can request a contribution holiday for up to 5 years at a time.
- You can elect to contribute either 2%, 4%, or 8% of your gross salary, with 2% being the minimum from your pay. If you are not employed you can contribute directly to your KiwiSaver.
- Employer contributions at dollar for dollar up to 2% of your gross salary. This 2% of your gross salary is paid by employers to your account without coming off your salary. The employer obligation is to match your contributions at 2% only. No employer contributions are payable during a contributions holiday.
- Investment returns on all the accumulated contributions (government, employer and you) belong to you individually (note: investment returns can be negative).
- KiwiSaver schemes generally have an independent Trustee appointed to look after the benefits and safeguard the interests of members.