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Change of status affects KiwiSaver
 
Q .           I have been contributing 4% of my salary to KiwiSaver since 2007.  In May I will become self-employed.  Do I have to continue my contributions and how will I go about it, if I am not in a PAYE situation? 
 
A.         People who are self-employed have more choices when it comes to KiwiSaver, but it is up to you to take action. While you are working as an employee your contributions are sent to Inland Revenue every month by your employer. They are then passed on to your fund manager. You can log in to the IRD website to check that this is happening, but otherwise you don’t have to do anything.
 
But the minute you stop working as an employee, your KiwiSaver contributions (and employer contributions) will stop. You don’t need to let anyone know, they will simply stop with the last PAYE contributions your employer makes for you.    Inland Revenue will no longer administer your KiwiSaver payments – you will need to deal directly with your fund manager.
 
You don’t need to continue contributing to KiwiSaver – that is up to you. If you choose to keep contributing, you can decide how much you can afford. It will depend on your age, what debts you have and when you plan to retire. There is no limit to how much you can save into KiwiSaver, but make sure your fund is appropriate to your age and risk profile. 
 
For most people becoming self-employed involves higher overheads and a variable income, so work out a budget and review it regularly. While KiwiSaver is a useful long term savings vehicle, it is locked in until age 65. So don’t direct all your surplus income into KiwiSaver, have some regular savings as well. You should have enough set aside to cover at least three months’ living expenses, in case you can’t work due to illness or other unforeseen events. 
 
There are some who object to the locked in nature of KiwiSaver, but it does serve a useful purpose. Not only does it put it out of reach of our own spending impulses, it is also not available to family members who might tap you on the shoulder for a loan. A lot of people find it difficult to say no to family. With KiwiSaver you can’t access your money until you are 65 (except in cases of dire hardship), so your kind heart is not going to get in the way of your long term savings plan. 
 
Most fund managers are happy to accept regular weekly, fortnightly or monthly savings into KiwiSaver. Saving $20 a week or $87 per month is enough to get full MTC credits from the Government each year, and that is what many self-employed people choose to contribute, directing other income into debt repayment as well as keeping cash on hand to tide them over when business is slow.
 
 
Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 870 3838. The information contained in this article is of a general nature and is not intended to provide personalised advice. Send your KiwiSaver questions to shelley.hanna@peak.net.nz