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KiwiSaver: Can Multiple Employers Contribute To My Account And Get Reimbursed?

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Contributor:
Mary Holm
Mary Holm

Question:

You stated an employer could pay up to $1043 into an employee's KiwiSaver account, and be reimbursed by the Government.

I would like to know what would happen if the employee had two or three employers, each employer not knowing that the others were paying extra contributions? I can envisage the maximum of $1043 being exceeded.

Answer:

Mary Holm: There's no limit to the number of employers who could make contributions of up to $1043 each and be reimbursed. And it doesn't matter whether they know one another is doing this.

What's more, after the employee has been in KiwiSaver for more than a year, he or she could take a contributions holiday and contribute no more through any of the jobs. The various employers could keep putting in $1043 each and getting that reimbursed. What a kind government!

Note, though, that if the employee is not contributing via deductions from their pay, employers' contributions would be taxed in most cases. That's because those contributions exceed the lower of the employee's PAYE contributions or 4 per cent of pay. Still, it's money for nothing, except administration costs.

Basically, there are three ways an employee can "do" KiwiSaver. The first - putting in 4 per cent of pay - will in most cases get you the most from the Government and your employer. But the last is a pretty nice deal if you can't afford to keep contributing after 12 months, or you are reluctant for some other reason.

There is actually a fourth way, sometimes called 2 per cent plus 2 per cent, which I mentioned briefly in last week's column. I suspect it's not commonly available - although that might change as people learn about it. If an employer and employee agree, the employer can help its employees to make their contributions in the first few years of KiwiSaver.

Under this option, up until April 2010 employees can put in only 2 per cent of their pay, instead of 4 per cent. Then, in the following year they put in 3 per cent, and from April 2011 on, it is 4 per cent.

The only difference for employers from the usual pattern is that they contribute 2 per cent of pay rather than 1 per cent in the current year, ending March 2009. After that, they make the usual employer contributions.

What all this amounts to is: employer and employee each contribute 2 per cent of the employee's pay until April 2010. Then, for a year, they each contribute 3 per cent. And from April 2011, they each contribute 4 per cent - just like everyone else in KiwiSaver.

An important point for employers stems from the fact that the Government reimburses their contributions up to $1043 per employee each year. That means the higher 2 per cent contributions this year won't cost them a cent for employees earning less than $52,150 - because 2 per cent of their pay is less than $1043.

Even if they have an employee earning $75,000, it will cost the employer only $457, as the rest will be reimbursed. And that $457 is tax-deductible. However, for an employee earning $100,000, it will cost the employer $957.

Clearly the 2 per cent plus 2 per cent arrangement is particularly attractive for lower-wage employers - who can offer a nice option for their employees without it costing them anything.

 

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.    

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