Going overseas, what are my options?
Q. I have been paying 8% into my KiwiSaver since I started full time work 3 years ago and my balance is now over $17,000. My plan was to contribute for 5 years then withdraw the money to buy my first home. However, things have changed in my job mainly because of a new boss and I can’t see myself working there for two more years. I am now thinking of heading off to the UK on a working visa. What is going to happen to my KiwiSaver while I’m away? I also owe nearly $15,000 on my student loan –should I have paid this off instead of putting so much into KiwiSaver?
A. Your situation is a great example of how plans can change. But this does not mean you made the wrong decision to contribute more into KiwiSaver instead of repaying your student loan. We often don’t know how events are going to unfold, but any plan is better than no plan and don’t waste your energy on regrets that only come with the benefit of hindsight.
You have saved 8% of your income at a time when investment markets have performed very strongly and as a result your KiwiSaver has grown substantially in a short space of time. You have not been paying interest on your student loan, so you are probably ahead at this stage. If you work overseas for two years and then return to New Zealand, you can apply to withdraw your KiwiSaver funds (all except the ‘kickstart’) to buy your first home. If you want to apply for the HomeStart grant as well you could get $3,000 (or $5000 if you contribute for a total of 5 years). Your absence from New Zealand will not affect your eligibility, but other criteria such as house cap and income caps do apply (these may change from year to year).
What about your student loan? If you go overseas for more than 6 months, you will incur interest at 5.3%pa on your student loan starting from the day after you leave New Zealand. As you owe less than $15,000, your minimum repayment obligation will be $1000 per year (the amount increases depending on the size of the loan) at the end of March and September each year. Inland Revenue provides overseas borrowers with a range of payment options on their website such as automatic payments, internet banking, credit card or foreign cheque. You must let Inland Revenue know about your plans – the easiest way is online through the myIR login. It is important that you keep up with the minimum repayments as late payment interest is charged on the unpaid amount. Inland Revenue is happy to help borrowers set up a repayment plan that works for them, so keep them informed. It may be a good idea to leave $500 in your New Zealand bank account for your first 6 monthly repayment, in case you don’t find work in the UK straight away.
If you decide to stay in the UK permanently you can apply for a permanent emigration withdrawal. KiwiSaver members in this situation can apply to withdraw the kick start, employer and employee contributions but no Member Tax Credits.
Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 870 3838 or go to www.peak.net.nz. The information contained in this article is of a general nature and is not personalised. Send your KiwiSaver questions to shelley.hanna@peak.net.nz.
You have saved 8% of your income at a time when investment markets have performed very strongly and as a result your KiwiSaver has grown substantially in a short space of time. You have not been paying interest on your student loan, so you are probably ahead at this stage. If you work overseas for two years and then return to New Zealand, you can apply to withdraw your KiwiSaver funds (all except the ‘kickstart’) to buy your first home. If you want to apply for the HomeStart grant as well you could get $3,000 (or $5000 if you contribute for a total of 5 years). Your absence from New Zealand will not affect your eligibility, but other criteria such as house cap and income caps do apply (these may change from year to year).
What about your student loan? If you go overseas for more than 6 months, you will incur interest at 5.3%pa on your student loan starting from the day after you leave New Zealand. As you owe less than $15,000, your minimum repayment obligation will be $1000 per year (the amount increases depending on the size of the loan) at the end of March and September each year. Inland Revenue provides overseas borrowers with a range of payment options on their website such as automatic payments, internet banking, credit card or foreign cheque. You must let Inland Revenue know about your plans – the easiest way is online through the myIR login. It is important that you keep up with the minimum repayments as late payment interest is charged on the unpaid amount. Inland Revenue is happy to help borrowers set up a repayment plan that works for them, so keep them informed. It may be a good idea to leave $500 in your New Zealand bank account for your first 6 monthly repayment, in case you don’t find work in the UK straight away.
You should let your fund manager know when you are no longer a New Zealand tax resident. You do not need to make any payments into your KiwiSaver while you are overseas, and you will not be entitled to Member Tax Credits. If you think you will withdraw funds on your return to buy a house, do not be tempted to leave your savings in a high risk fund – a balanced fund is more suitable than an aggressive or growth fund if your investment timeframe is less than five years.
If you decide to stay in the UK permanently you can apply for a permanent emigration withdrawal. KiwiSaver members in this situation can apply to withdraw the kick start, employer and employee contributions but no Member Tax Credits.
Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 870 3838 or go to www.peak.net.nz. The information contained in this article is of a general nature and is not personalised. Send your KiwiSaver questions to shelley.hanna@peak.net.nz.