Polson Higgs
WHAT KIWISAVER CHANGES MEAN TO YOU
The budget announcement in mid May contained four main changes to KiwiSaver. These are:
THE CHANGES
- For the year to 30 June 2012 (beginning this year on 1 July 2011) and beyond: The Member Tax Credit rate will be halved from $1 to 50c for every $1 that members contribute. The maximum level of the Member Tax Credit will also be halved from $1,042.86 per annum to $521.43 per annum.
- From 1 April 2012: Employer contributions to KiwiSaver will no longer be exempt from Employer Superannuation Contributions Tax (ESCT). Instead, they will be taxed at an employee’s marginal tax rate.
- From 1 April 2013: The minimum employee contribution rate will rise from 2% to 3%.
- From 1 April 2013: Compulsory employer contributions will also rise from 2% to 3%.
WHAT THEY MEAN TO YOU
The Government will soon to be contributing less to your KiwiSaver, by removing the employer tax exemption and halving its contribution rate.
From April 2013, both you and your employer will have to pay more into your KiwiSaver – a total of 6% of your salary, evenly split.
For the majority of people, these changes will see an increase to the total amount being paid into their KiwiSaver accounts, with the higher minimum employee and employer contributions more than offsetting the reduction in the government contributions and removal of the tax exemption.
But for those people who previously chose to make employee contributions of 4% or 8% of salary, and whose employers are contributing at 4%, the changes will see a reduction in contributions credited, given the impact of the tax removal and government contribution changes.
If you are an employer, the increase in minimum compulsory employer contributions will place pressure on your salary budget – although you do have some breathing space before this begins on 1 April 2013.
WHAT ACTION SHOULD YOU TAKE?
At this stage there is no action to take for any of our KiwiSaver clients. Self-employed individuals should still make the same level of contributions as they are currently making in order to receive the maximum government contribution.
For individuals who are accumulating assets, we have always advocated KiwiSaver as only part of your overall retirement plan – not the whole solution. These recent changes reduce the attractiveness of KiwiSaver from a taxation point of view, at the same time as requiring higher contributions compulsory. On balance, KiwiSaver is still a tax-advantaged way to undertake a minimum level of savings.
But even a 6% level of contribution will not be nearly enough to secure what most people would regard as a comfortable retirement. For example, in Australia there is a 9% compulsory employer contribution which many would like to see raised to 12%, given concerns about inadequacy.
WILL KIWISAVER BE CHANGED AGAIN IN THE FUTURE?
Some commentators have complained that the government is tinkering with KiwiSaver and introducing uncertainty. We agree that many people don’t like change. However, KiwiSaver will always be subject to change; sometimes for the better and sometimes for the worse. Governments (ie you, the taxpayer) need to reduce spending in times of reduced income, as it is currently. We wouldn't want the government to borrow money from China to pay into our KiwiSaver accounts? In the future, when finances improve, we expect the government may improve KiwiSaver conditions. Then there is always the possibility of making KiwiSaver compulsory at some stage. Expect more changes to KiwiSaver no matter who is in goverment.
What is more compelling at this time is the number of KiwiSavers who have not had any advice and who are in the wrong investments as a result.
From 1 July this year only Authorised Financial Advisers (AFAs) will be able to give advice on KiwiSaver. There are 1.7 million KiwiSavers and just not enough advisers to go around (600 at last count).
Polson Higgs Wealth Management provides KiwiSaver advice for its clients at no cost at this time. Contact Jared Campbell in Dunedin or Shiree Hembrow in Christchurch for help with KiwiSaver. They will consult with Rhodes Donald, our resident AFA, for a personalised KiwiSaver plan.
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Last Updated: Tuesday, 7 June 2011 | 12:15:08 p.m.
