How the savvy play KiwiSaver

16:00, Dec 14 2013

The smart money in KiwiSaver is male, over 55, degree-qualified, owns a rental property and is putting in just enough each year to get the maximum tax credit from the Government.

And the smart money makes up roughly 8 per cent of KiwiSavers, according to a survey by the Financial Services Council.

About 2.15 million Kiwis are now in KiwiSaver, with more than $16.6 billion in assets under management.

A $521.43 member tax credit is available for members over 18 who contribute $1042.86 during the financial year.

In 2012 $455m in tax credits were paid out to more than 1.2 million KiwiSaver members, the Inland Revenue Department said.

Just over half got the full $521.43 credit, the rest gaining varying amounts depending on their KiwiSaver contribution below $1042.86.


It's not what KiwiSaver was set up to encourage, Financial Services Council chief executive Peter Neilson said, but there is a "cluster" of KiwiSaver members who are not active and appear to be trying to maximise the KiwiSaver subsidy rather than save.

The council's October survey of more than 3000 KiwiSavers found 8 per cent were putting in only enough to claim the credit.

Neilson said these members were likely to be over 55, male, with a degree, and retired former business managers, senior professionals, executives and government officials.

They may also own a loss-making rental property to reduce their taxable income.

"If I am close to 65 and I know I can take a five-year term deposit with the bank or I can put it in KiwiSaver, get the $1000 kickstart and then if I put in $1000 I get $521 and interest . . . it's the best return investment you can make," Neilson said.

He said the "smart money" was doing this. "They understand how the system works and they are using it."

Neilson said the other group taking advantage of the KiwiSaver tax credit was high income individuals who may join up family members and pay money into their accounts rather than paying 33 per cent income tax to "maximise their tax benefit".

"It's perfectly legal but not what people had in mind."

IRD data showed there were a number of KiwiSaver members not earning a salary or wage who were putting in just enough to claim the credit.

IRD's sixth annual KiwiSaver report released last week showed two "peaks" in the amount contributed by those over 18 not earning an income of $1040 and $1200 which suggested they were trying to maximise the member tax credit, IRD said. These people could number 70,000, the data suggested.

Inland Revenue said 22 per cent, or 473,000, of all KiwiSaver members earning a salary or wage paid in enough to claim the credit and no more.

Neilson said KiwiSaver had been effective at getting people to enrol but unfortunately a lot of those people were not putting money in on a regular basis or saving for their retirement.

The Financial Markets Authority found for the year ended March 2013 more than 790,000 KiwiSaver members were "non-contributing".

KiwiSaver provider SuperLife's director Michael Chamberlain said there was no international evidence tax incentives did anything to encourage saving.

"Tax incentives will change people's behaviour to maximise what is in their interest. The member tax credit is in their interest, nothing else."

More than half of KiwiSaver members missed out on the credit.

Revenue Minister Todd McLay did not respond to a request for comment.

Sunday Star Times