News | Features
19 Jun 2021 6:42
NZCity News
NZCity CalculatorReturn to NZCity

  • Start Page
  • Personalise
  • Sport
  • Weather
  • Finance
  • Shopping
  • Jobs
  • Horoscopes
  • Lotto Results
  • Photo Gallery
  • Site Gallery
  • TVNow
  • Dating
  • SearchNZ
  • NZSearch
  • RugbyLeague
  • Make Home
  • About NZCity
  • Contact NZCity
  • Your Privacy
  • Advertising
  • Login
  • Join for Free

  •   Home > News > Business > Features

    Good Fairy Turbocharges Lower Income People's Savings

    You're struggling on a low income, as a part-time or full-time worker. All this talk about saving is fine for those making plenty, but you feel you can't spare anything. Fair enough.

    Enter the Good Fairy. "How about a deal?" she says. "If you can set aside just a few dollars a week, I will multiply your savings five-fold, eight-fold, thirteen-fold – the lower your income the more I will boost your savings. It will really help you get ahead in the long term. Interested?"

    While not everyone sees the government as a Good Fairy, the fact is that when the KiwiSaver minimum employee contribution drops from 4 per cent to 2 per cent on April 1, lower income people will see their savings boosted hugely in their first year in the scheme.

    After the first year, it's not quite so good. The savings for people earning less than $52,150 a year will be "merely" tripled. But that's still great. Three times as much going in means three times as much in savings at the other end. Where you might have saved $30,000, you will save $90,000. Where you might have saved half a million dollars over many years, you will save one and a half million.

    Nevertheless, you might feel reluctant to commit to saving for many years. And you don't have to. After your first 12 months in KiwiSaver you can take a contributions holiday for five years, and then keep renewing the holiday until retirement, if you wish.

    So it's silly not get in, at least for the first year, when the KiwiSaver 'multiplier' is extraordinarily powerful. Here's how it will work after April 1:

    • If you earn $5,000, you contribute 2 per cent, or $100 a year – less than $2 a week. Your employer contributes the same 2 per cent, or $100. And the government puts in the $1,000 kick-start as well as matching your contribution with a $100 tax credit. Total contributions are $1,300 – or thirteen times the $100 you contributed.

    • If you earn $10,000, you contribute $200 a year – less than $4 a week. Your employer also contributes $200, and the government puts in $1,000 plus a $200 tax credit. Total contributions are $1,600 – or eight times your $100.

    • As your income rises, the multiplier reduces. But at $50,000 it's still pretty good. You contribute $1,000 a year – less than $20 a week. Your employer also contributes $1,000, and the government puts in the $1,000 kick-start plus another $1,000 tax credit. Total contributions are $4,000 – or four times your $1,000.

    What about higher-income earners and non-employees?

    Someone earning $80,000 contributes $1,600, their employer matches that, and the government puts in the $1,000 kick-start and the maximum tax credit of $1,043. Total inputs are $5,243, or nearly 3.3 times the employee's contribution.

    Even at $200,000, the employee contributes $4,000, their employer matches that, and the government puts in $2,043. Total inputs are $10,043, or more than 2.5 times the employee's contribution.

    No matter how high the income, an employee's money will always be considerably more than doubled in the first year – and somewhat more than doubled in every subsequent year.

    Non-employees – including the self-employed, beneficiaries and others not in the work force – can join KiwiSaver, get the kick-start and contribute nothing, which is a fantastic deal. Several providers will accept this.

    However, it's better still if they put in up to $87 a month or $1,043 a year, giving them a matching tax credit. In their first year their money will be almost tripled because of the $1,000 kick-start. After that, it will be doubled – still well worth getting.

    © 2021 Mary Holm, NZCity

     Other Features News
     10 Sep: Spring clean your finances
     13 Aug: Plan ahead to give yourself a debt-free Christmas!
     10 Jul: Wise up to clear credit card debt
     07 May: Ways to prepare for the unexpected
     30 Mar: Time for a financial progress check
     10 Feb: Studying up on NZ Super
     10 Jan: Managing the back-to-school bills
     Top Stories

    Disappointment from Taranaki head coach Neil Barnes, that loose forward Lachlan Boshier has been let go by New Zealand Rugby More...

    The Auckland Tuatara will miss a second straight Australian Baseball League season, citing ongoing uncertainty around Covid-19 More...

     Today's News

    Scarlett Johansson is grateful her Marvel alter ego Natasha Romanoff is no longer “hyper-sexualised” 6:41

    Melbourne United's won the opening game of the Australian basketball league against Perth 73-70 6:26

    Dwayne 'The Rock' Johnson didn't have "political passions" until the public called on him to run to be President in the future 6:11

    Taliban taking back territory as Australian and US forces prepare to leave Afghanistan by September 23:26

    Rugby League:
    Adam Pompey has bounced Rocco Berry out of the Warriors side to play the Knights tomorrow 21:56

    Kanye West "likes spending time" with Irina Shayk and is happy to enjoy things as they progress 21:41

    Law and Order:
    Police say they'll be reviewing their footage from a major gang member's funeral...and following up any infringements 21:16

    Dwayne Johnson has topped PEOPLE magazine's list of 100 Reasons to Love America 21:11

    Cheryl eats a meat-free diet three or four days a week 20:41

    Kelsey Grammer has teased "some things will be different" with the 'Frasier' reboot 20:11

     News Search

    Power Search

    © 2021 New Zealand City Ltd