Q. We are the parents of a couple of young children, whom we are thinking of enrolling into KiwiSaver. Before committing them to a possible lifetime of contributing to the scheme, could you please give us an idea of the options available should they, on reaching adulthood decide that Mum and Dad's "great idea" back when they were kids, is not really what they want to do with their money? With so many young New Zealanders leaving the country for good, what happens when an individual simply pulls out or stops making payments into the scheme?
A. We make many decisions on behalf of our children, such as having them vaccinated, enrolling them in pre-school, teaching them to swim and feeding them healthy food. All of these demonstrate our values.
Signing up your children to KiwiSaver could be another of those decisions.
Take a look at Inland Revenue's KS33 guide entitled KiwiSaver: A Guide for Children and Young People, which you will find on the IRD website. It is a useful guide for parents.
If you sign up your children now they will get the $1000 "kickstart" from the Government. You will need to choose a provider (ie, a fund manager who offers a KiwiSaver scheme - there are dozens to choose from) and fill out the application form in its investment statement. Look for a scheme with low fees if you do not plan to add to their investment yourself - most funds have a fixed annual member fee which can vary from $24 to $50 per year.
As $50 is 5 per cent of $1000, that will make quite a dent in their investment returns each year. Those fees are on top of the management fees deducted internally by the fund manager (usually in the range of 0.5-1.5 per cent per annum). Your choice of scheme does not have to be a final decision - you (or your children) can switch to another scheme later on.
Should you contribute to your children's KiwiSaver? That is entirely up to you. Bear in mind that they will not be eligible for Member Tax Credits (up to $521 per year) until they are over 18. Once they start regular work, a percentage of their pay will go into their KiwiSaver and if they are over 18 their employer will contribute as well. A member can apply for a "contributions holiday" after 12 months of contributing, or sooner if they are experiencing hardship, by filling out the KS6 form from IRD.
If KiwiSaver members go overseas permanently they currently have two options. After 12 months they can apply to cash up their KiwiSaver, but they lose any Member Tax Credits. Alternatively they can leave the funds invested here until the age of 65, and cash them up then. The withdrawal form requires a declaration that any Member Tax Credits were earned while they were resident in New Zealand, but they do not lose the Member Tax Credits just because they are now living overseas.
Fund managers will be happy to continue investing on behalf of New Zealanders living overseas and - who knows? - it may be another link with home that will encourage them to return one day.
Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 8703838. The information contained in this article is of a general nature and is not intended to provide personalised advice. If readers have any KiwiSaver questions they would like answered please go to www.peak.net.nz or email firstname.lastname@example.org