kiwisaver, contribution, investing

Don't miss out on your 'free' KiwiSaver money!

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Want to get some extra cash into your KiwiSaver account?

Of course you want some (or at least I’ll assume you do). Lucky for you, this blog post is here to tell you all the different ways you can get some extra cash in your KiwiSaver account.

Sometimes when people hear the word free, they get a bit sceptical. So let’s firstly answer the question below.

Why is there such a thing as “free” KiwiSaver money?

KiwiSaver was created in 2007 to encourage people to save towards their retirement. This is important for Kiwis but is hardly a priority for many of us. So, to motivate people to use their KiwiSaver accounts to save, one thing the creators of KiwiSaver offered was the ability to earn “free” money.

There is a small catch to getting this money: in order for you to receive it, you must also put in some money. But it’s not that big of a deal because, after all, the more money you have in KiwiSaver, the more money you’ll have for retirement! And that’s a good thing because stressing about finances is the last thing you’ll want when you finally get to retire.

Ways to get your “free” KiwiSaver money

There are two main ways to receive money as a reward for contributing to your KiwiSaver account.

  1. Employer Contributions, and

  2. Annual Government Contribution (Member Tax Credit)

1. Employer Contributions

For most people, your employer is obliged to match your contributions towards your KiwiSaver account at a minimum of 3 percent in addition to your pay. This means that if you are an employee and you ask for at least 3 percent of your wages to be deducted from your pay, your employer will contribute an additional 3 percent of your wages towards your KiwiSaver. Your employer’s contribution (as well as yours) will have tax deducted from it.

This may sound a bit complex. But to simplify it down, let’s illustrate this with an example. We will ignore taxes and the complex rules around it to make it even more simple.

Sarah works at XYZ Corporation, who pays her $100,000 per year before tax. Sarah chooses to deduct 3 percent of her salary to go straight towards KiwiSaver. This means she will contribute $3,000 towards her KiwiSaver account. Because of this, XYZ Corporation will also contribute an additional $3,000 per year (or 3 percent of her salary) as well. 

This means Sarah will receive $97,000 a year in her bank account, $3,000 worth of her own contributions in her KiwiSaver account, and an additional $3,000 of “free” employer contributions too.

Now imagine Sarah wanted to have 10 percent of her salary deducted to go into her KiwiSaver account. As a result, she will now contribute $10,000 per year. However, her employer is only legally obligated to contribute an additional 3 percent. This means Sarah’s employer will still only give an extra “free” $3,000 per year towards her KiwiSaver account.

You can contribute more than 3 percent of your money towards KiwiSaver (which is usually recommended), but it is likely your employer will not match your contribution beyond the 3 percent level. However, some employers match an amount beyond the 3 percent (e.g. the NZ Defence Force matches your contribution up until 4 percent).

A warning about total remuneration

It is important to point out that if you have signed a total remuneration agreement, you will not receive any “free” KiwiSaver money from contributing to your account. This is because any employer contribution to your KiwiSaver account comes out of your take home pay. Such an agreement is usually signed by larger employers.

Let me give an example to illustrate this (we’ll ignore tax again). Imagine you sign a total remuneration agreement earning $100,000 per year. 

Under a total remuneration agreement, if you contributed 3 percent of your pay to KiwiSaver, your employer is still obliged to contribute 3 percent to your KiwiSaver. However, the 3 percent your employer contributes comes out of your total remuneration of $100,000 a year. 

As a result, your bank account will receive $94,000 a year from your employer, and your KiwiSaver account will have $6,000 in it. You will not receive any extra “free” money from contributing to KiwiSaver if you have signed a total remuneration agreement.

Who else is not legally obliged to receive the employer contribution?

As of writing, the IRD website says that an employer needs to make their contribution for employees that are:

  • “aged 18 and over”

  • “aged under 65 or those that have not been a KiwiSaver or complying fund member for five years (whichever date is later)”

  • “in KiwiSaver or a complying fund and you deduct KiwiSaver contributions from their salary or wages”

  • “not a member of a defined benefit scheme.”

The criteria may sound a bit confusing, so do take some time to read over it to make sure you understand. If you want, you can also contact us and we can help you understand.

Additionally, people that are self-employed and don’t pay PAYE income (e.g. contractors) do not receive employer contributions. However, they can make voluntary contributions towards their KiwiSaver account.

2. Annual Government Contribution (Member Tax Credit)

The Annual Government Contribution is a great way to grow your KiwiSaver savings too.

The Government will match 50 cents per dollar you invest in your KiwiSaver account from the 1st of July until the 30th of June each year, up until a certain point. The Government will give you a maximum of $521.43, meaning you need to contribute $1042.86 per year to receive the full amount.

However, if you put less than $1042.86 into your KiwiSaver account, you can still earn some of the Annual Government Contribution. For example, if you put only $500 during the KiwiSaver year in your account, you’ll receive $250 from the Government.

If you wish to receive the full contribution, you need to put in a bit over $20 a week. A person who contributes 3% and works full-time on the minimum wage will receive almost all (if not all) of this government contribution, provided they meet the criteria and work year round.

In calculating how much of the Annual Government Contribution you receive, your employer contributions are not taken into consideration. Only your own contributions count. This includes the money deducted from your wages/salary and any voluntary contributions you make.

To receive the Annual Government Contribution, you must be:

  • 18 years or older

  • Not eligible to withdraw money for retirement

  • Living mainly in New Zealand

But what if you turn 18, reach 65 or join KiwiSaver part-way through the KiwiSaver year? In this case, the maximum government contribution you can receive is calculated based on how many days of the KiwiSaver year you’ve been a member for. For example, if you joined KiwiSaver halfway through the year, you could receive up to half of the Annual Government Contribution.

Where can I get more advice regarding KiwiSaver?

If you’d like more information on your KiwiSaver, there are a few things you can do.

The first thing we recommend you do is check out the rest of our blog posts. You can look at them by clicking here. They aim to cover various topics on KiwiSaver and enlighten you with new information.

The other thing we recommend is making use of our KiwiSaver HealthCheck. By filling this out, you can figure out which KiwiSaver fund is best for you. This is based on the responses you provide in this simple-to-fill out form. Our National Capital research team has spent hours searching for the best KiwiSaver funds out there, and you can reap the benefits of this.

What’s great about our KiwiSaver HealthCheck is that when you fill it out, you will get the privilege to talk to a real person about your financial situation. And you can ask this person about any questions on your mind. You can also ask them how to best take advantage of the “free” KiwiSaver money talked about in this blog post.

This service is for free, so you don’t have to pay a consultation fee or anything fancy like that. You simply fill out our KiwiSaver HealthCheck, turn up to the call, and take full advantage of this service.

So what are you waiting for? Take a step towards financial prosperity and fill out our KiwiSaver HealthCheck today.

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Are you with the right KiwiSaver fund provider for you? Take our free KiwiSaver HealthCheck and find out!

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