Topping up for annual contribution well worthwhile

Raise your hand if you fancy up to $521.43 added to your KiwiSaver account.

For those that are eligible, and have contributed enough in the last Crown (Government) year (July 1 to June 30), that is exactly what happens. No strings attached, no paperwork to complete and no liaising with Inland Revenue.

Look at your account in July and there it could be. Every year, the message from KiwiSaver providers to their members is the same but we still see a significant number of people missing out on maximising this Government contribution to their account.

Generally, in order to be eligible for a Government contribution, you need to be a New Zealand resident, over 18 years old and not yet eligible to withdraw.

If you joined KiwiSaver at age 60 or over, before July 1, 2019 and have not opted out of the five-year membership requirement, you too, should be eligible. Anyone who has made a life-shortening congenital condition withdrawal is no longer eligible.

The maximum entitlement is reduced proportionately if you were only eligible for part of the year; for example if you turned 18, moved overseas or reached the age of eligibility to withdraw during the period.

How it works is simple. Currently, if you are eligible, for every dollar you put in between 1 July and 30 June, the Government pays an extra 50c to your KiwiSaver savings, to a maximum of $521.43.

That means if you are eligible for the full entitlement you would need to contribute at least $1042.86 each year to receive the full Government contribution (that is about $20 per week). If you have contributed less than $1042.86, the Government contribution is adjusted on a pro-rata basis.

As a general rule for those eligible for the whole period, if you earn an annual salary or wages of $35,000 or more and your contribution rate is 3%, you are likely to get the full Government contribution.

If you earn less than this, or you are self-employed and not regularly contributing, you may want to consider topping up your KiwiSaver account to get your maximum entitlement.

In the background, providers are getting ready. Come July, they will submit a claim for the Government contribution to Inland Revenue on your behalf. We have come a long way since the first claims process and this is now a very efficient activity between Inland Revenue and providers, so much so that you could typically expect to see it in your account in the first couple of weeks of the month.

But with a couple of weeks left to go, topping up might be a consideration for you. The rule of thumb above helps and remember, it is about your own contributions, not any your employer makes.

Members who are self-employed and are not regularly contributing, those on a savings suspension or perhaps those taking a break from the workforce, might want to think about it.

If your kids are over 18, KiwiSaver can help them save for their first home, so topping-up to maximise the contribution may be worthwhile. You have two options to check out your contributions: either jump on your provider’s site, log in and check out a transaction summary or log in to MyIR.

Here you can find what KiwiSaver scheme you are with (if you are not sure) and your contribution information for the year. Topping-up should be an easy process.

Search for your KiwiSaver provider on internet banking and do not forget to include your IRD number in the reference fields so they can process the deposit into your account.

Finally, grab a calculator and multiply $521.43 by the number of years you have left until retirement. Combined with compounding interest, think about what you would do with that money.

While the politicians in the future may debate the merits of continuing this contribution, it is here now and it’s real money that can be your money, so don’t miss out on maximising it for your KiwiSaver account.

  • Trish Oakley is Head of Summer (Forsyth Barr’s KiwiSaver scheme). This is not a recommendation to buy or sell any financial product and does not take your personal circumstances into account.

 

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