How to set KiwiSaver credit clock ticking

Last updated 00:00 04/09/2007

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Judging by readers' questions, confusion reigns about the Government's KiwiSaver tax credits, which match members' contributions by up to $20 a week, or $1042 a year.

The tax credits are paid to every contributing KiwiSaver member 18 and over till they reach NZ Super age (at present 65) or five years after joining, whichever is later.

For example, if you join at age 63, you will continue to get the credits till five years later, when you are 68.

Employees and non-employees all get the tax credit. And despite its name, you don't have to be paying tax to receive it.

The tax credit year runs from July 1 to June 30. After every June 30, providers will tell Inland Revenue how much tax credit each member should receive. Some time after that – at this stage it's a bit vague exactly when – the money will be put in members' accounts.

In your first year of membership, the maximum tax credit is proportionate to how much of the July 1-June 30 year you have been in a scheme.

Inland Revenue rules about when the tax credit clock starts ticking are:

If you join via your employer, your tax credit start date is the first day of the month in which the first deductions are taken from your pay.

If you join directly through a provider by October 1 this year, your start date is the first of the month in which you complete your membership application, as long as you make a first contribution by October 31.

Providers cannot start accepting contributions till October 1. But in most cases, people who join through a provider before October and sign up to contribute monthly or more frequently will make a contribution during October. Otherwise, you can contribute directly to Inland Revenue, via Internet banking or Westpac.

If you join directly through a provider on or after October 1, your start date is the first of the month in which the provider receives your first contribution.

In all cases, the sooner you get on board, the more government money you will get.

If you are a non-employee planning to contribute $1042 or thereabouts a year – to get the maximum credit with minimal input – it's best to make at least a small contribution during October, or the first month of your membership if it's after October.

After that, you can contribute the rest as late as the following June 30, and you will still get the maximum credit. And in subsequent years you can make your entire contribution at the end of June if you want to. It's only in the first year that you need to get money in early.

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A 61-year-old reader who plans to join KiwiSaver adds: "My husband is semi- retired and will be 65 in four months' time so we will not be concerned for him."

Please do be concerned, and sign him up before his birthday. Otherwise he's turning away $1000 plus five years of $1042 – assuming he contributes at least $1042 a year – which comes to $6214, plus any employer contributions.

Mary Holm is a seminar presenter and author of KiwiSaver: How to make it work for you. Her advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Contact her at www.maryholm.com, or by mail care of this newspaper.

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