Key KiwiSaver and Tax Cut Changes

John Key and crew have rushed parliamentary process to bring into effect tax cuts and KiwiSaver changes before Christmas. They also rushed some changes to KiwiSaver, before the KiwiSaver member public knew what they were talking about. Here is a summary quote from the NZPA report linked above.

"The tax cuts will deliver $18 a week extra for a worker on the average wage when the first tranche kicks in next April." What is the National Average Wage they refer to? National Party referred to as being $52,000.

So if you've got an extra $18 per week on top of the $10 per week extra you had been delivered in October 2008, you're $28 per week better off. You may like to consider increasing your KiwSaver contributions, or taking up medical insurance, or doing a review of your finances by calling me.

But that is not all. "Incorporating Labour's October 1 tax cuts, the same worker would be $47 a week better off by April 2011, when the whole programme is in force." Quote from NZPA report linked above.

Definitely time for a review of your financial situation!

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KiwiSaver Changes.

This is a really brief summary, and it is based on the scanty information that is currently available.

In summary:

If you're in KiwiSaver and make no payments, or pay by direct debit, there is no change. You need do nothing.

If you're an employee, your matching contributions from the government are limited to 2% of your wages, or $1040 per year, which ever is lessor.

There may be ways around this limit on the $1040 government annual contributions for part time employees who have been in KiwiSaver for more than one year. That remains to be seen. (National obviously can't see it, otherwise they would have stopped this potential loop hole).

If you're an employer, listen up.

Currently the rules generally apply as:

Employee

4% from employee (after his / her tax)

Employer (matching employer tax credits from the government)

1% from your employer this year, unless you've got another arrangement.

2% from your employer next April (stays the same)

Changes include: no more increases to employer contributions from then on.

No more tax credit to the employer to subsidise the employer contributions due to the fact that these are now limited to 2%.

What has also changed is that employees (from the change effective date, April 1, 2009, I believe) can pay only 2% instead of 4% of their wages.

Employers pay a maximum of 2% compulsory contributions for staff.

BUT the biggest difference which was simply not flagged to anyone in any media statements, despite what the Hon Mr Bill English states is:

The superannuation tax to employer contributions to employee superannuation plans extends to KiwiSaver employer contributions over and above 2% of the annual cash salary.

This is a breaking news summary from Neil Smith of Life Risk Limited it is not a comprehensive report on the proposed KiwiSaver or Tax Cut changes from April 1, 2009. I will be blogging, and writing articles on my website on this topic. I am available to speak at work places on this topic, and call me if you have questions or wish to sign up for KiwiSaver, or have me as a resource at your work place in 2008 or 2009.