With a KiwiSaver scheme, the government is adding to your savings - and assuming current Government policy is passed by Parliament - your employer is likely to be too.
A If you earn $50,000 a year - about $960 a week - 4% is just under $40 a week. If you earn the average wage of $619 a week, 4% is just under $25.
B Your employer forwards the contributions to Inland Revenue, which forwards them to your KiwiSaver account.
C This can be for any length from three months to five years. You can only take a contributions holiday once you've been in KiwiSaver for 12 months - or less if you're experiencing financial hardship.
D The exact amount of the tax credit will depend on how much you're paying into your KiwiSaver scheme - the government will match your contributions up to the $20 a week limit.
E All KiwiSaver providers will charge management fees. For KiwiSaver default schemes these include account fees of about $3 a month, plus a percentage of your KiwiSaver balance.
F To sweeten the deal for employers, the government is giving them a tax credit of up to $20 per week per employee.
How does KiwiSaver work?
KiwiSaver contributions
If you're an employee and you join KiwiSaver, you'll have to pay either 4 or 8%A of your before tax pay into a KiwiSaver scheme. Your employer will take your contributions out of your payB .
If you want to switch from 4% to 8% or back again you can - but no more than once every three months.
After you've been in KiwiSaver for 12 months, you can also take a contributions holidayC , meaning you don't have to pay into the scheme.
You can make lump-sum contributions directly to your KiwiSaver scheme at any time, on top of your regular contributions.
Government contributions
To help you save, the government will kick-start your savings with a $1000 tax-free lump sum, give you a tax creditD of up to $20 a week ($1040 a year), and pay $40 a year towards the cost of your KiwiSaver scheme's feesE .
Employer contributions
With some exceptions, your employer also has to contributeF to your KiwiSaver account. Initially, they have to contribute 1% of your before tax pay. That will increase to 2% in 2009, 3% in 2010, and 4% in 2011. Some employers are choosing to contribute more than they're required to.
If you're self employed
If you're self employed, you'll have to agree with your provider how much you'll pay into the scheme and how often, and you'll need to make the contributions yourself. You can find out more about how KiwiSaver works for the self employed from www.kiwisaver.govt.nz. Make sure you understand the rules before you join a KiwiSaver scheme.
More than one job?
If you have more than one job when you join KiwiSaver, you can choose which job or jobs you contribute from. If you take on an additional job after joining KiwiSaver, you'll have to contribute from that job for at least 12 months; after that you can take a contributions holiday.
Case study
32-year-old Lauren earns $50,000 a year and decides to sign up to KiwiSaver on 1 July 2008. She chooses to contribute 4 % of her before tax pay - $2000 a year.
Lauren receives the $1000 tax-free lump sum, an annual tax credit of $1040 (paid into her account), and $40 a year towards her fees. Lauren’s employer also contributes 1 % of her before tax pay ($500). At the end of her first year Lauren has $4580 in her KiwiSaver account – that’s without interest on her investment or any fees and charges.
But the $1000 lump sum only occurs once. So Lauren’s KiwiSaver add-on in the following year will be slightly less – even though her employer contributes 2 % ($1000). Her total savings, however, are now $8660.
After four years of being in KiwiSaver, Lauren has savings of $18,320 in her account even though she has only contributed $8000 herself. (Remember these figures don’t include any interest or return on her investment, any fees and charges, or any pay increase – all of which are likely to occur.)
GUIDE TO THE TABLE
A rises each year from 1% to a maximum of 4%.
B does not include any interest on investments or fees and charges.
