30 August 2017

Many KiwiSaver members don’t understand how credits work

Each year the Government offers free money. But some people still don’t know what it is or how to claim it.

A member tax credit (MTC) of $521 is available to all KiwiSaver members who contribute at least $1042 into their accounts each financial year. They do not have to do anything else to claim it – KiwiSaver providers handle the process of getting the money into their accounts.

But the Commission for Financial Capability says not enough is being done to make people aware of this key KiwiSaver benefit, and to make sure they get it.

Almost half the KiwiSaver members polled in a survey by Inland Revenue had not heard of a member tax credit.

When it was explained to them, a quarter still did not know what was meant.

People were even unclear about their own funds: Of those who knew about the credits, some thought they hadn’t received any money when they had. Some thought they had been paid the full amount of $521 when they hadn’t.

Anyone who earns more than $40,000 in a year and is contributing 3 per cent of their pay would automatically be putting enough into their KiwiSaver accounts to qualify for the full tax credit.

Many self-employed people or those out of the workforce are encouraged to put $20 a week into their accounts to get the credit. It is also possible to make a lump sum payment of $1042 before June 30 each year, to get the $521.

The commission’s education manager, David Boyle, said some providers had said the problem was affordability – that people did not have enough money to save to get the full tax credit.

“The research shows that while it was part of the issue, there were other reasons why people missed out. Many said they would have saved in KiwiSaver if they had known about the MTC and they expected their providers to communicate more clearly.”

Last year 1.1 million members missed out on the full MTC. Of that number, 580,000 received nothing at all because they did not put any money into their KiwiSaver accounts.

One in three of those who didn’t get the full amount said it was because they didn’t know enough, if anything, about it. And 62 per cent of them said that they would be more likely to save enough if they had known.

Boyle said: “It’s disappointing that Kiwis are missing out on money which could help them in the future when they decide to stop work finally.

“It’s the best-known return anyone is going to get on their savings. Simply put, those who are eligible are getting a 50 per cent return on every dollar up to $1043 a year.

“But once that year goes by, you can’t go back and claim it later. That’s why it is so important to act now and make sure you don’t miss out next year.”