KiwiSaver

KiwiSaver members are being reminded to make sure their annual contributions for the 12 months to June 30 are sufficient to ensure they get the full government hand out.

For every dollar a member puts into their KiwiSaver account, the government puts in 50 cents – up to a maximum of $521.43 each year. The MTC is paid into a member’s KiwiSaver account in late July or August and to get their full MTC this year, individuals need to contribute $1,042.86 to their KiwiSaver account between July 1, 2013 and June 30, 2014.

For those who joined part way through the KiwiSaver MTC year, their MTC will be pro-rated.

“There aren’t many opportunities in life to get free money, so we think those saving for retirement should do their best to try and get as much of their $521 MTC from the Government as possible,” AMP chief customer officer Jeff Ruscoe says.

He says that over time MTC contributions can add up significantly and make a big difference over a lifetime of saving.

“Even if you are unable to top up the entire amount this year, the Government will still contribute 50 cents for every dollar paid to your KiwiSaver account. We just recommend people make a goal for next year to increase contributions to reach the $1,042.86 threshold,” continues Ruscoe.

Recent AMP research found that only 41% of working Kiwis are aware of the MTC credit available to them each year. In addition, 68% are unaware of how much they need to contribute in order to receive their full MTC payment.

“If someone is earning over $35,000 per year and contributing at 3% then they are likely to get the full $521. Many people don’t realise that by taking a contribution holiday they are missing out on free money from the Government.

“With so many people unaware of the MTC we believe that it’s absolutely essential that AMP and the rest of the industry takes time not only to educate Kiwis about the opportunity to receive their Government MTC contribution, but also to remind people as the deadline approaches so that we can all help New Zealanders live the retirement lifestyle they want,” Ruscoe says.

Although there are a number of KiwiSaver funds marketed as ethical or socially responsible, the Sustainable Business Network, is seeing how much interest there is a new fund.

The Network has launched  a survey which aims to identify demand and create a sustainable KiwiSaver fund for New Zealand.

It says that KiwiSaver funds currently have little to no sustainability criteria. “This means that when fund managers select companies to invest in on New Zealanders’ behalf, they don’t include environmental or social factors as part of their investment criteria,” it says in a release.

“A growing number of New Zealand businesses are providing solutions to some of our environmental and social issues. We want to develop investment criteria that will help to grow these sorts of businesses,” says Rachel Brown, CEO of the Sustainable Business Network.

“A set of positive criteria, which would align well with SBN’s aim of turning New Zealand into a model sustainable nation, would reward companies in areas such as clean technology, sustainable agriculture and more.”

The survey forms part of the Sustainable Business Network’s project to create a sustainable KiwiSaver fund for New Zealand. The results of the survey will be taken to the finance industry to find a solution.

“We want to know what New Zealanders want from a sustainable KiwiSaver investment fund,” Brown says.

Go to the survey here
 

New Zealanders with a mortgage have even more enthusiasm for compulsory KiwiSaver than New Zealanders generally, says the Financial Services Council.

It had been suggested that those with a home loan might be less likely to support a compulsory retirement savings scheme if it meant it took them longer to pay off their mortgages.

But FSC chief executive Peter Neilson said 72.6% of the respondents to a Horizon Research survey who had a mortgage supported compulsory KiwiSaver, compared to 70.7% generally.

He said the issue for middle and lower-income New Zealanders was not whether to save for a house or a comfortable retirement. “They know you have to save for both and many are doing so using KiwiSaver.”

He said:  “If you get to retirement without mortgage free accommodation, you probably won’t achieve an adequate retirement, living on NZ Super alone. KiwiSaver for most New Zealanders is the best way to save your first-home deposit and later to save to achieve a comfortable retirement.  That’s why more than 10,000 New Zealanders have already used KiwiSaver to save the deposit to purchase their first home.”

But he said investment in property was taxed more leniently than KiwiSaver investments.

“That’s why the FSC is campaigning for fair taxation of KiwiSaver funds.  Paying off the mortgage or saving for retirement in KiwiSaver is a false choice, we need to do both and a fairer tax treatment for KiwiSaver funds would help both objectives,” he said.

“The FSC has not itself taken a position on whether KiwiSaver should be compulsory or stay voluntary but has commissioned research and polling to help New Zealanders, our politicians and their advisers to be better informed about the options available.”
 

Most middle income New Zealand employees are being sent down a road to a financially uncomfortable retirement, says the Financial Services Council (FSC).

It has this week sent all MPs an Infometrics report detailing how retirement incomes for employees can be doubled while leaving the NZ Super pension in place.

Chief Executive Peter Neilson said MPs had been told that unless KiwiSaver fund tax rates are cut and default investors are moved from conservative to balanced or growth KiwiSaver funds, most middle-income employees will be unable to achieve a comfortable retirement.

This advice is based on a new Infometrics report commissioned by the FSC which has been sent to MPs prior to the Budget and the start of the election campaign.

Neilson said the report showed that to fund a comfortable retirement at about two times NZ Super alone (currently $282 a week after tax for each of a couple) the most important drivers for KiwiSaver members, after  setting the right level of income to be saved were choosing the right KiwiSaver fu, then the tax paid on returns earned on KiwiSaver investments, and lastly the level of fees paid to KiwiSaver providers.

Last year the Government decided not to have default KiwiSavers opt automatically into a balanced or growth fund with the option to move later if that was their choice.  Default providers now have to advise default KiwiSavers on where best to invest to achieve their desired retirement.

Neilson said New Zealand had the most punitive tax regime for retirement saving in the developed world.

“Someone on the average wage saving over 40 years will lose half of their retirement nest egg to the impact of tax,” he says.

“The international superannuation guru, Ezra, has estimated that if you did not pay tax on your retirement investment fund you would only need to save $1 for each $10 you received in retirement.  This means $9 out of the $10 dollars come from the compound returns (the interest on interest) from your initial $1 of savings.

“In New Zealand you have to save $2 to get the same $10 of retirement earnings because our tax regime is cutting your retirement nest egg in half.

Last year the FSC published an earlier Infometrics report that outlined how we could cut the contributions to fund a comfortable retirement by moving default KiwiSavers from conservative to balanced or growth funds for higher earnings and from cutting KiwiSaver fund tax rates. 

The latest report examines those proposals in greater detail to address concerns that the proposed changes might be unfair to lower income KiwiSavers. 

The analysis shows that the value of the reduced KiwiSaver tax rates over 40 years far exceeds the value of the $521 tax credit which is worth $28,000 over 40 years. 

MPs have been told tax reform could drop contributions for someone on the average wage by $164,000 and the tax change boosts their nest egg by $288,000 over a 40 year working life.

Neilson said the analysis also showed that the effective tax rates with the proposed lower FSC tax rates were not only more progressive than the current ones but that the effective tax rate for the highest income earners (37.1%, balanced fund) were higher than the current highest marginal income tax rate of 33%.

“Middle and lower income New Zealanders deserve the comfortable retirement enjoyed by long serving politicians and public servants.  That cannot happen unless the unfair taxation of KiwiSaver funds is addressed,” Neilson said. “Only politicians can fix that for us. Fair tax for KiwiSavers will be an election issue this year.  It is one important element to stop us sending most employees on the road to a financially uncomfortable retirement.”