My husband is a teacher and is in the Government's SSRSS super scheme. He is with ASB Bank. His contribution is 3 per cent, as is his employer's - the Government.
My question: Can he also join KiwiSaver to take advantage of the tax credits. And the big question: would he also get the 2 per cent employer contribution?
Mary Holm: Yes he can join KiwiSaver - as can any other New Zealand resident
under 65 who is in another super scheme. If he does, he'll get the
$1000 kick-start and the member tax credits, but he won't get the 2 per
cent employer contribution if his employer is already putting 3 per
cent into the SSRSS. This is to prevent "double-dipping", and it seems
fair to me.
The more interesting question is whether your husband should join KiwiSaver. The answer is "yes" - in one way or another. And, by the way, the same might be said for people in other super schemes, who may want to analyse their situation in a similar way to what follows.
First, let's note some key points:
* In some circumstances, SSRSS members can get their money out between 50 and NZ Super age, whereas in KiwiSaver it's NZ Super age - or older if you join when you are over 60. If this is important to you, it may sway your decisions.
* SSRSS members can stop and start their regular payments into the scheme whenever they want to.
* In the first year in KiwiSaver, employees must contribute at least 2 per cent of their pay. But after that they can take a contributions holiday and contribute nothing, or any amount they choose, paying it directly to their provider.
* When not on a contributions holiday, employees must put in 2, 4 or 8 per cent of their pay via their employer. But they can also make extra contributions of any amount - regularly or occasionally - directly to their provider.
* The last two points assume the provider will accept the amounts contributed. Most are pretty flexible. If your provider won't accept the level of contributions you want to make, move to one who will.
If your husband is willing to save more than his current 3 per cent to his retirement savings, the best strategy is to continue contributing 3 per cent to the SSRSS and to also join KiwiSaver, paying the minimum 2 per cent of pay for a year. If 2 per cent is less than $1043 - which will be the case if he earns less than $52,150 a year - he should top up his KiwiSaver contribution to $1043 if he can afford it, to get the maximum tax credit.
After a year he should take a contributions holiday from KiwiSaver but keep contributing $1043 a year directly to his provider and 3 per cent to SSRSS. That maximises the contributions he can receive from the Government, which will powerfully boost his savings. It also gives good flexibility on when he can withdraw money.
The financial rewards for using this strategy - especially in the first year when your hubby will get the kick-start - are such that it's worth eating into other savings, or adding to your mortgage, to make it work. This is probably also true of later years.
Nevertheless, your husband might prefer to stick to contributing just 3 per cent of his pay. The question then is: should he suspend SSRSS payments and put the money into KiwiSaver?
In the first year, KiwiSaver is clearly better. He receives the $1000 kick-start as well as the tax credit, which matches his contributions up to $1043 a year. This more than makes up for the fact that his employer will contribute only 2 per cent of pay to KiwiSaver, compared with 3 per cent to the SSRSS.
The SSRSS would be better only if he earns more than $204,300 a year - and I don't think we're paying teachers quite that much.
In later years, he won't get the kick-start. So he needs to weigh up getting the KiwiSaver tax credit versus getting the extra 1 per cent from his employer. Unless he earns more than $104,300 a year, the KiwiSaver tax credit will be higher, so he should stick with KiwiSaver.
If he does earn more than $104,300, he should take a contributions holiday from KiwiSaver and resume his regular contributions to the SSRSS.
For more on the rules regarding KiwiSaver for SSRSS members, and a comparison of the two schemes, see www.superscheme.govt.nz/SSRSSAndKiwiSaver/
A couple of final points:
* SSRSS members who earn more than $204,300 a year might want to note that even though the SSRSS works better for you than KiwiSaver in the first year, in the long run it's still worth also joining KiwiSaver to get the tax credits over the years.
* Any other readers who think the SSRSS/KiwiSaver combination looks attractive - and it certainly is - should note that the SSRSS is no longer open to new members.
Mary Holm is the author of bestselling books on KiwiSaver and personal finance. She is also a highly praised seminar presenter. Her written advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following that advice.
Mary Holm: Kiwi Saver: How to Make it Work for You
Gareth Morgan: Kiwisafer: How to Keep Your Money Safe in Kiwisaver
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