KiwiSaver- Should you join?

√ Potential tax saving - the maximum tax you will pay on your plan is 30% (could be 19.5% if that is your marginal tax rate)
Check out the KiwiSaver Calculators to see how much you could be saving!!

https://interact2.ird.govt.nz/forms/kiwisavercalc/

http://www.sorted.org.nz/calculators/kiwisaver-quick-calc/page1.php


KiwiSaver and fundamental tax changes to how managed funds are taxed will inject significant investment flows toward fund managers for the first time in New Zealand’s investment history. By comparison to many other comparable OECD countries New Zealand’s funds under management has languished lifeless year after year, residential property being a preferred option. An example is the last quarter of 2006. Reportedly Australia saw A$26 billion new money flow into managed superannuation accounts, New Zealand pathetically struggled to match outflows with inflows.

Historically managed funds in New Zealand have been dogged by poor performing life insurance funds dominated by high fee, up-front commission products that rightfully received bad press. These also detracted from good performing managers that were investment-only focused. Even then the playing field still skewed dramatically toward buying another house because good investment performance was arrested by the IRD siphoning off 33% capital gains tax from funds before Joe Investor got the crumbs. Sometimes it was hard for even the best manager to outperform the market index, worse still, money in the bank.

Well that is all about to change big time and far reaching tax changes mean it is now far more compelling to use managed investments. First, the capital gains tax on share funds has gone. Now managed funds compare as well as owning shares directly yourself. Individuals with only small amounts to invest will be able to buy into a pool of managed shares and get fair performance. Second, the new tax rules include Australian shares so funds that invest in the new ‘domestic’ market include Australian shares on a similar tax basis. Third, most investment funds will become PIE’s (Portfolio Investment Entities) and they are now going to be taxed only on dividends at the new lower company tax rate of 30% meaning someone who pays tax at 39% is rather better off than doing it yourself.

Finally, there is KiwiSaver, the new work-based superannuation scheme. This far reaching new scheme will dramatically alter the investment landscape in New Zealand for good. All new employees will be compulsorily enrolled when they start with a firm. Considering that about 20% of us change jobs annually this means a lot of new enrollments each year; however any existing employee can decide to join up. Employees can of course opt out but why would you?

The government kicks in with $1,000 immediately on starting contributions. Additionally the government gives $20 per week ($1,040 max) as a tax credit into your KiwiSaver account and $40 fee allowance every year! Even better is that employers are now going to contribute to your account starting April 1 2008 at 1% moving up to 4% in 4 years. Employees will get some serious money in their accounts! Table 1 shows the accumulation without any investment earnings. 

Table 1
(Salary $40,000pa, 4% Employee contributions start 1 July 2007. Employer Start 1 April 2008.)