If you’re in Kiwisaver, you may know that the government gives you a cash contribution to your balance every year, in the form of Member Tax Credits. It’s $521.43, paid every July. It may not sound like a lot of money to everyone, but if we apply the magic of compounding interest, we find that a $521.43 annual contribution, assuming an investment return of 3% net of fees, tax, and interest, is worth an extra $56,000 at retirement age for someone who starts saving at age 18:
So, well worthwhile! Free money, as it were. But not so fast – in order to receive your $521.43 Member Tax Credit every year, the government requires you to contribute a minimum of $1,042.86 of your own money to your Kiwisaver account. That’s your own money – so it has to be money you’ve put in additional to any other government contributions, contribution that your employer makes, or any transfers that you’ve received from overseas superannuation schemes.
For anyone who is employed and not on a Kiwisaver savings suspension, if you earnt more than around $34,750 this year, you’ve probably contributed enough through your employer deductions (assuming you’re contributing at 3%). If, however:
- You are on a Kiwisaver savings suspension.
- You’ve only been employed or a Kiwisaver member for part of the year.
- You earnt less than $34,650 this year.
- You’re self-employed (and not paying yourself via PAYE), and haven’t made any voluntary contributions.
Then you’ll need to make sure you check and top up through voluntary contributions yourself. And you’ll need to do so before the 30th of June! That’s the end of the Kiwisaver financial year. If $1,042.86 is a challenge to come up with all at once – setting up an automatic payment to spread it out over a full year could be a lot easier – it works out to $20.06 per week.
Why it’s worthwhile
Lets redraw that graph above to include all the contributions that would actually be accumulating in their Kiwisaver, for someone who is employed from age 18, being paid just enough to contribute the minimum $1,042.86, earning the full $521.43 Member Tax Credit, in addition to the $1,042.86 that their employer contributes. Assume that all their contributions track exactly in line with inflation, and that they earn a net 3% p.a. on their investment:
Starting to look pretty good. So – check your Kiwisaver now, and make sure you’ve contributed enough by June 30th to qualify for the full Member Tax Credit. We can help you work it out – and if you’re not a Kiwisaver member yet? Now is a great time to join – book in a time to have a chat about how.