KiwiSaver

Inland Revenue needs to acknowledge that over-charging KiwiSaver members tax is a bigger problem than some not paying enough, one adviser says.

It was revealed this week that IRD had determined 450,000 people were paying the wrong rate of tax on their KiwiSaver accounts and other managed funds.

It had written to at least 120,000 taxpayers, some of whom said they were being given bills of hundreds of dollars a year.

It said it would not pursue people for underpayment in previous years, not refund overpayment.

Its new computer systems meant it could more easily see what tax rate should be applied to PIE investments.

KiwiSaver tax is an issue that has been highlighted by AFA John Cliffe, who headed a group that wrote an open letter last year outlining major problems with the retirement savings scheme.

One issue highlighted by the letter was the fact that people who enter a default KiwiSaver scheme are assigned a tax rate of 28%, even though they might be meant to pay only 10.5% or 17.5%, depending on their income in the prior year.

The letter noted that while the IRD supplied default KiwiSaver funds with default members' account details, it did not give them the tax rate. Unless a fund was able to confirm it direct with the member, they were stuck on the maximum rate.

Cliffe said the IRD should be compelled to give tax rate information to KiwiSaver providers for all members.

He said the reason the IRD was backing away from seeking underpaid tax in previous years was probably because overpayment was more of an issue.

The IRD has been approached for comment on this point.

Cliffe's colleague, Rachelle Bland, has launched a petition "to fix KiwiSaver tax".

She said the major drawback with default enrolment was that there was nowhere on the form for an employee to enter their ta rate.

"Rather they get taxed at the highest rate of 28% until they advise their KiwiSaver provider otherwise. This can only happen after the end of the three month opt in period. To make matters worse, there is no way for overpaid tax to be refunded as KiwiSaver tax is a final tax."

She said it had been an issue since 2007 and the youngest, least financially aware members were the most affected.

KiwiSaver members will now see their projected savings for retirement and the likely weekly income it will provide on their annual statements, Commerce and Consumer Affairs Minister Kris Faafoi says.

“By making this information easily available New Zealanders will be able to see whether they are on track for the kind of retirement they want or whether they need to make changes to their savings.

“They will also receive information about the steps they can take to increase their savings – because we want people to have the best retirement possible.”

KiwiSavers providers will use a standard formula and assumptions for calculating projected retirement savings, to ensure all providers take the same approach.

“We want people to enjoy the full benefits of KiwiSaver, and for this to happen they need good information,” Faafoi said.

“By requiring KiwiSaver providers to calculate projected retirement savings in a consistent way, people will have a more meaningful view of their finances and will be able to make any necessary adjustments.”

Faafoi said the Government had been working to improve the information provided in annual statements, including a new requirement to disclose the total amount in fees that people have been charged through the year.

Research showing many New Zealanders are not on track for retirement proves the need for advisers, ASB says.

Almost half of New Zealanders responding to the latest ASB KiwiSaver Survey thought they should be saving more than 10% of their income to fund their retirements but only 22% were doing so.

ASB head of KiwiSaver Aidan Vince said: “We have regularly asked if people are saving enough, and this survey as well as earlier findings show the majority of people don’t think they are on track.

"In the latest survey we asked some more specific questions in order to understand how people come up with their savings goals, and identify areas where people need some help.”

The survey showed although just 22% of people were saving more than 10% of their income, 46% thought they should be saving this much.

A further 16% and 18% respectively said they did not know how much they were saving, and how much they should be saving.

Half said they would need $50,000 a year in retirement.

When respondents were asked how they came to their figure, 15% said they used online tools, while 14% based their views on advice from family and friends.  A further 11% said they formed their own estimate, while the same proportion (11%) formed their opinion from information from media. Around 8% received advice from a bank, and 7% from a financial planner.

“While it’s good that some people have thought about this, a lot of the really solid advice and information that’s available appears to be untapped by the vast majority of investors in KiwiSaver,” Vince said.

“So the key message for these people that don’t know how much they’re saving or don’t know how much to save, is to call a KiwiSaver provider or talk to a financial adviser, because they can help with both of those questions.  Discussing the latest KiwiSaver changes to see what rate suits you is a great place to start to see whether you are on track or could save more."

ASB wealth economist Chris Tennent-Brown said the research showed the important role advisers had in understanding how much people needed to live on in retirement as well as planning an investment strategy to stay on track.

"Most people appear to not be on track, but aren’t getting advice from an adviser, which is disappointing. Around 8% of respondents say they received advice from a bank, and 7% from a financial planner – I had hoped that a lot more people would get advice from both sources."

New data from the Financial Services Council shows New Zealanders now have nearly $60 million in their KiwiSaver accounts.

The FSC said the total pool was now $58.53b, up $1.26b over the last quarter and 16.5 per cent in a year.

“The growth of the KiwiSaver pie is very encouraging news for New Zealanders, as it helps create long-term wealth for the 2.85 million Kiwis that are in the system,” said chief executive Richard Klipin.

“Recent changes introduced by the government, including the changes in contribution rates, new options for over 65’s and savings suspension are all contributing to improving the scheme.

"The figures show average individual KiwiSaver balances growing to just under $19,250, up around $500 over the quarter. These additional savings combined with a sustained period of market growth in New Zealand means now is the time for Kiwis to save for their future."

He said the financial services sector had the responsibility of helping New Zealanders build, manage and protect their welath.

“With other changes in the pipeline, such as the KiwiSaver Default Provider Review and CFFC Review of Retirement Income Policies coming later in 2019, these results are encouraging, as they show the individual wealth of those in KiwiSaver is growing," he said.

“Joining means that you can choose your level of saving, receive contributions from your employer and up to an additional $521.43 a year from Government which together mean your savings will grow quicker."