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KiwiSaver Q1 2016: At a glance

Wealth Works Authorised Financial Adviser Bonard Metahysa shares the latest KiwiSaver updates plus talks about putting your children in KiwiSaver and making sure your on the right KiwiSaver tax rate for your earnings!

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KiwiSaver changes have been dominating the headlines this year as a few key updates come into play. We saw finance minister Bill English scrap the kick start incentive in last year’s May Budget and since then the number of people joining has declined.  In contrast, funds available via the First Home Subsidy have increased, which makes accessing KiwiSaver dollars a good option for first home buyers.

Overall though, you may have wanted to avoid checking your balance too often in Q1! Market fluctuations have seen balances go up and down, as typical with any long term investment. Two things to consider is whether you are on the correct tax rate and if signing up your children is still a good idea, read our thoughts below... 

Throughout the heyday of the kick-start we strongly encouraged clients to opt younger family members into KiwiSaver.  It was an easy decision. Now, without the $1000 incentive the question we asked most often is:  

Should I still sign my children up to KiwiSaver? 

There are pros and cons to signing up your children to KiwiSaver.

Pros

  • It’s always going be a good idea to teach your children about savings and investment habits early.  KiwiSaver is a great opportunity to teach your child about savings, interest and help them to understand the markets ups and downs and long term trends.

  • Although they won’t receive the $521.00 tax credit until they’re 18 and in the workforce, they could still earn some interest over a period of time if they are in the right fund.

  • Getting started early will give your child a generous retirement fund. This is really important. There is no guarantee that by the time your child gets to the retirement age they will be supported by a government pension. Even if they are, it might not be enough to help them to live a comfortable lifestyle.

Cons 

On the flip side, like any wise investment ensure you understand some of the restrictions:

  • The funds are locked in until the purchase of a first home or the age of retirement. That means that they are not going to be able to access that money in a hurry.  The exceptions to this rule are if a person moves away from NZ permanently, comes into significant financial hardship, suffers a terminal illness or passes away.

  • To see any benefit you would need to contribute regularly to your child's KiwiSaver. You may also want to consider that there may be other requirements that you would like to contribute to prior to your child's first home or retirement. For example, education, purchasing first home or overseas experiences etc.  

  • We’re seeing more people access their funds to get into their first home which is a BIG bonus. However, this rule can be changed in the future and like any investment there are no guarantees.  

  • If you are concerned about the funds being locked in until retirement or the Government changes to the KiwiSaver in the future to make it less accessible for the first home withdrawals, talk to one of our advisers. They may be able to suggest an alternative non-KiwiSaver investment for your children where the funds could be easily withdrawn for the purpose of buying a first home, a new car, or funding your child’s education


Next Steps

  • Do you have a future plan for your children? Check in with an Authorised Adviser to ensure you're on track.
  • If you / and or your children are already in KiwiSaver - are you in the right fund with the best provider?
  • It's a new financial year, check your tax rate for earnings (see below...)

Am I on the right tax rate for my KiwiSaver?

The tax rate for your investment earnings from your KiwiSaver as a PIE (Portfolio Investment Entities) fund is referred to as your prescribed investor rate (PIR).  It is important to notify your provider of the correct (and updated) PIR tax rate for your KiwiSaver. This is important because any PIR tax that you overpay on your KiwiSaver returns is not able to be claimed back via tax returns.

On the other hand, if your PIR is lower than it should be IRD may note this when you complete your tax returns and make you pay the difference. Visit the Inland Revenue website to work out your PIR.

 

Contact us today for a complimentary review of your KiwiSaver 09 306 5820 

Bonard Metahysa | bonard@wealthworks.co.nz 

 
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