A.         After lengthy debate from both sides, the KiwiSaver Budget Measures Bill passed through all stages under urgency on Saturday May 23, 2015.  The third reading of the bill was completed by 63 to 56 with National, Maori Party, ACT and United Future in favour.

The Government’s decision to remove the kick-start took people in the industry by surprise and fund managers will be working overtime to process applications received before the deadline and to update their investment statements and marketing brochures. 

The Government suspended the kick-start from 2pm on the afternoon of Thursday May 21, during the Budget announcement. For employer enrolments, eligibility for the kick-start would be based on the employment start date (for default enrolments) or the date the employer signed the KS2 (for opt-ins via employer).  Employees in this position will need to ask their employer for written confirmation of their employment start date or date they signed a KS2 (opt-in notice).  This will then have to be sent to Inland Revenue to determine their eligibility for the kick-start and for them to update their records.

The removal of the $1000 incentive is bound to result in a drop off in enrolments for children as well as the self-employed and unemployed who do not receive employer contributions, although eligible members over 18 and under 65 will still get up to $521 in Member Tax Credits each year. Grant Robertson said on Friday that Labour will reinstate the kick-start if it wins the next general election, so many people may wait to see what happens in 2017.

So are there any benefits to signing up your children to KiwiSaver without the kick-start? KiwiSaver is a good place for you and other family members to put money towards their First Home, and you can use it to talk to your children about saving. But without the kick-start you will have to contribute something to their account yourself and fund managers are likely to set up a minimum level of contributions for children. Up until now most have been happy to look after the $1000 kickstart, with no further contributions until the child gets older and starts contributing through employment.   

If you do sign up your children to KiwiSaver, take note what the fees are. There is a management fee (usually a percentage of the balance) plus a monthly account fee. While account balances are small this is the fee that will eat into the savings. Some fund managers already offer children a lower fee, and with the axing of the kick-start more managers may come on board with this. 

If you can afford to set up a direct debit for say $20 per month into your child’s KiwiSaver this will help towards a First Home purchase. By signing them up yourselves rather than leaving it for them to decide at the age of 16 or 18, you are showing them that you believe saving is important. At the same time, you could also set up another more accessible savings account (perhaps for their tertiary education). 

One of the advantages of KiwiSaver is that it can’t be tapped into except for a First Home, and when your children grow up and start work they will have seen the benefits of long term saving and be familiar with the workings of their KiwiSaver account.