Question:

With the latest changes to KiwiSaver that were implemented on April 1, 2009, I was advised by my employer that all contributions made to KiwiSaver after that date would effectively be paid for by myself.

My employer is paying the KiwiSaver employer's contributions as part of total remuneration.

I have a mortgage and can now no longer see a benefit in making the savings into KiwiSaver. So I will be, most probably, going on a permanent KiwiSaver payments holiday. Can you advise if there are any benefits to me in remaining in KiwiSaver?

Answer:

Mary Holm: Yes, there are a couple - and they're worth getting.

First, let's explain total remuneration to other readers. An employer who uses it might say to employees, "I'll give you a 3 per cent increase in the upcoming year, but 2 per cent of that is tagged as a KiwiSaver allowance.

If you're in KiwiSaver - or you later join - you will get the allowance in the form of my KiwiSaver employer contribution. If you don't join KiwiSaver - or you are on a contributions holiday - you can instead take the 2 per cent allowance as cash in your regular pay."

If an employer takes on a new employee on a total remuneration basis, and the employee joins KiwiSaver or is already a member, the employer will make their 2 per cent contribution and the employee's take-home pay will be reduced by that amount.

In a total remuneration situation, KiwiSaver employees don't seem to benefit from employer contributions any more than their non-KiwiSaver workmates.

The employer pays the same to both - but in two different forms. In a way, as you say, it's as if you've paid the employer contribution yourself, by forgoing the money in the hand.

You do, however, receive a considerable advantage. Your employer's 2 per cent contribution is not taxed, and nor is the ACC levy taken out of it.

You keep the lot in your KiwiSaver account, while your non-KiwiSaver workmates receive only the after-tax, after-levy amount. This makes quite a difference, especially for higher-paid people who pay more tax.

What's more, you'll get the member tax credit - matching your contributions up to $1043 a year.

By the time you consider the tax credit and the tax break, you will almost certainly be better off in the long run continuing to contribute to KiwiSaver compared with repaying your mortgage - or investing elsewhere.

Note, though, that your best strategy will probably be to put only 2 per cent of your pay into KiwiSaver - with a top-up, if necessary, to get to $1043 a year. This will get you all the KiwiSaver benefits. You should put any further saving into mortgage repayment.

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.