How Budget Changes Affect KiwiSaver

(PR.co.nz) KiwiSaver – how changes affect New Zealanders.

1. 35-year old couple on average household income. Ben and Megan are both 35 years old. Ben works full time and earns $52,000 a year and Megan works part time earning $25,000 a year. Their combined income is equivalent to the average household wage. They join KiwiSaver on 1 April 2013 and both contribute the new minimum rate – 3 per cent of their gross wages. Ben contributes $29.92 a week and his employer contributes 3 per cent, or $24.68 a week after tax. He receives the equivalent of $10 a week in government contributions through the annual Member Tax Credit. Megan contributes $14.38 a week and her employer contributes 3 per cent, or $11.87 a week after tax. She receives the equivalent of $7.19 a week from the Member Tax Credit. By age 65 Ben and Megan would have combined savings of about $247,500. This would be enough to provide gross income of about $15,000 a year in retirement over and above the married rate of NZ Superannuation – currently $27,194 a year after tax.

2. 30-year old on average wage Steven is 30 and earns $50,000 – about the average wage. Steven joins KiwiSaver on 1 April 2013 and contributes the new minimum rate of 3 per cent of his gross wage – $28.77 per week. Steven’s employer contributes 3 per cent, or $23.73 a week after tax. He receives the equivalent of $10 a week from the Member Tax Credit. At age 65 Steven would have about $190,000, which would be enough to provide gross income of around $11,500 a year in retirement over and above the single rate of NZ Superannuation – currently $17,676 a year after tax.

3. 18-year old on the minimum wage Blair is 18 and earns just over $27,000 a year – around the minimum wage. Blair joins KiwiSaver on 1 April 2013 and contributes the new minimum rate of 3 per cent of his gross wage – $15.60 a week. Blair’s employer contributes 3 per cent, or $12.87 a week after tax. He receives the equivalent of $7.80 a week from the Member Tax Credit. At age 65 Blair would have about $195,000, which would be enough to provide gross income of more than $11,500 a year in retirement over and above the single rate of NZ Superannuation – currently $17,676 a year after tax.

4. 30-year old couple each earning $45,000, contributing 4 per cent and intending to use the first home buyer subsidy Bechi and Dan are both 30 and each earn $45,000 a year. They both join KiwiSaver on 1 April 2013 and choose to contribute 4 per cent of their gross wage – $34.52 a week each. Their employers contribute 3 per cent, or $21.36 after tax. They each receive the equivalent of $10 a week from the Member Tax Credit. After three years, if Bechi and Dan decided to buy their first home, they may be eligible for a first home deposit subsidy of $3,000 each, which increases to a maximum of $5,000 after five years. They could also withdraw their own contributions, their employers’ contributions and their fund returns to buy their first home. After five years they would have about $36,000 available for withdrawal, and if their combined income remained under $100,000, they would also be eligible for the $5,000 deposit subsidy, pushing their total first-home deposit to about $46,000. Assuming they withdrew the maximum amount to buy their first home, at age 65 Bechi and Dan would have a combined balance of about $345,000, which would be enough to provide gross income of about $21,000 a year in retirement over and above the married rate of NZ Superannuation – currently $27,194 a year after tax.

5. 45-year old couple with household income of $120,000 Tama and Lisa are both 45. Tama earns $80,000 a year and Lisa earns $40,000 a year. They both join KiwiSaver on 1 April 2013 and contribute the new minimum rate of 3 per cent of their gross wage. Tama contributes $46.03 a week and his employer contributes 3 per cent, or $32.22 a week after tax. He receives the equivalent of $10 a week from the Member Tax Credit. Lisa contributes $23.01 a week and her employer contributes 3 per cent, or $18.99 a week after tax. She receives the equivalent of $10 a week from the Member Tax Credit. At age 65 Tama and Lisa would have about $200,000, which would be enough to provide gross income of about $12,000 a year in retirement over and above the married rate of NZ Superannuation – currently $27,194 a year after tax.

6. 35-year old earning $80,000 Matt is 35 and earns $80,000 a year. He joins KiwiSaver on 1 April 2013 and contributes at the new minimum rate of 3 per cent of his gross wage – or $46.03 per week. Matt’s employer also contributes 3 per cent, or $32.22 a week after tax. Matt receives the equivalent of $10 a week from the Member Tax Credit. At age 65 Matt would have about $225,000, which would be enough to provide gross income of about $13,500 a year in retirement over and above the single rate of NZ Superannuation – currently $17,676 a year after tax.

7. 40-year old earning $100,000 Lelani is 40 and earns $100,000. She joins KiwiSaver on 1 April 2013 and contributes at the new minimum rate of 3 per cent of her gross wage – $57.53 a week. Lelani’s employer contributes 3 per cent, or $38.55 a week after tax. She receives the equivalent of $10 a week from the Member Tax Credit. At age 65 Lelani would have about $212,500, which would be enough to provide gross income of more than $12,500 a year in retirement over and above the single rate of NZ Superannuation – currently $17,676 a year after tax.

8. 50-year old existing member on average wage Emma is 50 and earns $50,000 – about the average wage. She joined KiwiSaver in July 2007 and first contributed 4 per cent of her gross wage. She currently contributes 2 per cent, or $19.18 a week and this is matched by her employer. She also receives the same amount from the Member Tax Credit, which will reduce to the equivalent of $9.59 a week for the year to 30 June 2012 and beyond. From 1 April 2013 Emma’s minimum contribution will rise to 3 per cent, or $28.77 a week. Because her contributions rise the amount she receives from the Member Tax Credit will increase to the equivalent of $10 per week. Her employer’s contribution will also increase to 3 per cent, or $23.73 a week after tax. At age 65 she would have about $75,000. This would be enough to provide gross income of about $4,500 a year in retirement over and above the single rate of NZ Superannuation – currently $17,676 a year after tax.

9. 30-year old existing member earning $40,000 Nick is 30 and earns $40,000 a year. He joined KiwiSaver in July 2007 and contributes 4 per cent of his gross wage – $30.68 a week. His employer contributes $15.34 a week. He currently receives the equivalent of $20 a week from the Member Tax Credit, which will reduce to the equivalent of $10 a week for the year to 30 June 2012 and beyond. From 1 April 2013, Nick’s employer contribution will increase from 2 per cent to 3 per cent, or $18.99 a week after tax. If Nick leaves his contribution rate unchanged, then at age 65 he would have about $215,000. This would be enough to provide gross income of $13,000 a year in retirement over and above the single rate of NZ Superannuation – currently $17,676 a year after tax.

10. 50-year old couple with household income of $100,000 Jeremy and Chloe are both 50. Jeremy earns $75,000 a year, while Chloe works part time and earns $25,000 a year. They both join KiwiSaver on 1 April 2013. As their children have now left home and they have paid off their mortgage, they choose to contribute 8 per cent of their gross wages. Jeremy contributes $115.07 a week. His employer contributes 3 per cent of his gross wage, or $30.21 a week after tax. He receives the equivalent of $10 a week from the Member Tax Credit. Chloe contributes $38.36 a week. Her employer contributes 3 per cent, or $11.87 a week after tax. She receives the equivalent of $10 a week from the Member Tax Credit. At age 65 Jeremy and Chloe would have combined savings of about $217,500. This would be enough to provide gross income of about $13,000 a year over and above the married rate of NZ Superannuation – currently $27,194 a year after tax. If Jeremy and Chloe had contributed only 4 per cent of their gross wage, they would have combined savings of about $140,000, or enough to provide additional gross income of about $8,500 a year in retirement.

Assumptions used in KiwiSaver examples

Although the Member Tax Credit is paid annually after the government financial year, the estimated annual amount has been averaged on a weekly basis for the purposes of these examples.
All retirement savings figures are in today’s dollars, based on funds earning a real return of 4 per cent a year and real wage growth of 1.5 per cent a year, unless otherwise stated.
The Member Tax Credit and tax rates are not indexed for inflation.
Estimated retirement income is based on life expectancy of 25 years in retirement and an annual real return of 2 per cent a year. Payments are inflation adjusted to preserve real value.

Media Release 19 May 2011 from Bill English, Minister of Finance.