How does your OE effect your KiwiSaver?
What happens to your KiwiSaver while you are overseas, and what are the potential pitfalls?
There are a few things to consider, so you don’t miss out while you are away.
1. Member Tax credits
Member tax credits is the $521.43 a year that the government puts into your KiwiSaver if you have contributed at least $1042.86.
You are eligible for this if you are over 18, and mainly reside in NZ (with a couple of exceptions).
So if you are on your OE, you likely wont be eligible for the member tax credits.
However, the government does not always know who is overseas and who is not, so if you contributed during the KiwiSaver financial year (1 July to 30 June), you will likely still receive the tax credits. So this can be good to get you some additional funds.
However, when you make a withdrawal (retirement or first home for example), you have to declare if you have lived overseas and if it turns out you were not eligible for some of the money they will take this back from your KiwiSaver. This could impact your house deposit, so you want to be sure of this before you assume you can get the money out.
You don’t have to pay back any interest or growth made on that money, so if you are overseas for 3 years and got the tax credits, and also made $500 interest on those tax credits, that money is yours. So you may want to keep contributing while overseas. Talk to your provider, or your adviser about how to arrange this (we have helped many people do this and have a lot of clients overseas on their OE).
2. HomeStart grant
The HomeStart grant is the ‘free money’ you can get from the Government when buying your first home. Some of the eligibility requirements are that you have to have contributed 3% of your income for at least 3 years (and up to 5) to get the full eligibility.
Being overseas means you likely won’t have a NZ income. If you don’t have any NZ income, you have to contribute 3% of the NZ minimum full time wage to count that year towards your eligibility. From 1 April, the minimum full time wage will be $660 a week, so you will need to contribute $19.80 to your KiwiSaver. It's worth it if you can afford it, as contributing the $1029 a year will get you $1000 from the HomeStart Grant.
3. Fund growth and contributions
While you are overseas your fund will keep growing, so you generally don’t need to do anything about it. Its good to be clear about your timeframes so you can make sure you are in the correct fund.
If you plan to come back and buy a home (which many people do), you may want to look at a more conservative fund to reduce volatility in the fund before you take the money out.
Get some advice on this. You will probably need to talk to an Authorised Financial adviser about this as the direct providers (such as banks) cannot give you this personalised advice.
You also need to decide if you want to contribute while you are away as you wont have an NZ salary to contribute from. You can usually set up a direct debit, or automatic payment for this to your fund, its easy. Your adviser can help with this.
If you have any questions on how this works, don’t hesitate to get in touch with the team at DUX.