KiwiSaver

The FSC is reminding KiwiSaver members they have less than a fortnight to top up their accounts to get the maximum member tax credit this year.

Those who put at least $1042 in their accounts each year to the end of June receive the maximum $521 credit from the Government.

FSC chief executive Peter Neilson said there would be no other savings vehicle that would offer that 50% rate of return.

“$521 a year may not sound like much but over 45 years and then earning interest on the interest reinvested it could mean over $100,000 more in your retirement nest egg at age 65.”

The FSC estimates that about 460,000 New Zealanders earning less than $35,000 will probably leave money on the table because they have not contributed enough to pick up the full $521.

Those on a contribution holiday will similarly miss out on the $521. 

Neilson said he was going to top up his daughter’s KiwiSaver account because her part-time earnings while studying would not get her to the $1042 saving threshold.

He said: “With 2.5 million KiwiSaver members already enrolled it is the most successful savings innovation in the last century.  All KiwiSavers should have June 1 marked in their diary each year to remind them to check their KiwiSaver balance, whether their level of contributions will get them the full $521 tax credit, whether they are in the best investment style for them and if the current tax rate is  being applied to their fund.  Getting these settings right can mean the difference of $100,000s more in your retirement nest egg at 65.  It pays to keep an eye on your KiwiSaver account to check it is working  hard to you.”

Mercer has been given approval to combine its two KiwiSaver schemes into one.

Managing director Martin Lewington said the FMA had agreed to it transferring its Mercer Super Trust KiwiSaver scheme members into the Mercer KiwiSaver scheme.

“Combining our two KiwiSaver schemes ensures our KiwiSaver members have access to the best possible products and services in the market. Existing members of the Mercer Super Trust KiwiSaver scheme will also benefit from lower fees.”

The transfer is expected to be completed this month.

IRD says it expects to reach a resolution with its British counterpart soon, after KiwiSaver schemes were removed from its list of recognised overseas pension schemes.

New British legislation, which came in at the beginning of April, means any scheme that has qualifying registered overseas pension scheme (QROPS) status must not allow members to make any withdrawals before age 55.

All KiwiSaver schemes were disqualified as QROPS because they allow early withdrawals, such as in cases of financial hardship, when someone buys a first home or emigrates permanently.

Without QROPS status, any transfers to a KiwiSaver scheme could now attract a tax penalty of up to 55%.

Transfers that have already been made are safe.

David Milner, of Britannia Financial Services, said British HM Revenue and Customs (HMRC) had always been concerned about KiwiSaver providers allowing early access to funds.

“It’s possible UK authorities will not make changes to current regulations to exclude KiwiSaver schemes from the changes introduced. However, this issue could very quickly be resolved if the Government made changes to the KiwiSaver Act ring-fencing UK pension transfers in the same way that Australian pension transfers are ring-fenced to line up with Australian pension rules. Such a change would need to waive any rights held by KiwiSaver members who transferred prior to these changes being made,” he said.

But he said it might not be well received by people who transferred to a KiwiSaver scheme on the assumption that they would be able to make an early withdrawal.

He said he understood that was a benefit that had been promoted by some KiwiSaver providers.

Australian providers are also affected.

An IRD spokesman said: “Inland Revenue is in discussions with HMRC about this issue and we expect a resolution will be reached soon.”

Axing of the $1000 kickstart payment for KiwiSaver has been a headache for providers.

The Government announced in its Budget this year that it would no longer offer the kickstart, effective immediately.

It gave providers less than two months to update their marketing material and other documentation to reflect the changes.

Brian Henry, managing director of Amanah Ethical, which operates a KiwiSaver fund that operates according to Islamic principles, said it was a sad day for KiwiSaver.

He said all providers had been affected. “We’re all in the same boat, everyone has had to change their documentation. It’s a huge change. I know from talking to the other providers that having that $1000, if you’re 16, 17, 18 deciding two opt in or keep the 3% in your pay packet, the $1000 is the thing that makes up their minds…. the whole purpose of the scheme is a little bit undermined.”

Therese Singleton, general manager of investments and insurance and AMP, said the change was costly. “With no notice and no consultation with the industry, there’s a cost to that, there’s a cost to the consumer and to the institution. Open dialogue with industry through regulators and the ministry is very, very important.”

But Henry said his scheme had been especially disadvantaged.

The Islamic scheme had not been on offer long. Many people had been waiting for a fund that was in keeping with their Islamic beliefs and had only had a short time to investigate the Amanah offer.

“We had eight weeks properly in the market and then bang it’s gone.”

He said the $1000 was not just an incentive to encourage people to join in the first wave but to continue to join and to sign up their children. “Once the kids are in, they’re in the market forever.”

Steady numbers had been joining but it took time to get used to the product and his scheme had not been in the market long enough for many people who sought an Islamic product to make the most of it, he said.

He has written an open letter to Prime Minister John Key asking him to reconsider the removal of the kickstart.