Clive Fernandes
Auckland, April 13, 2024
In an effort to strengthen family support and financial stability, the New Zealand government has passed legislation to aid KiwiSaver contributions for parents during periods of paid parental leave. This crucial development, embedded within the framework of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Bill, recently secured approval following its third reading.
According to the newly ratified law, the government will assume responsibility for covering the 3% employer contributions to KiwiSaver accounts for employees while they are on parental leave. However, a significant stipulation accompanies this support: employees must maintain voluntary contributions to their KiwiSaver accounts to be eligible for governmental assistance.
Finance Minister Nicola Willis underscored the importance of this provision in addressing the retirement savings gender gap, wherein women often trail behind men in terms of savings accumulation. By ensuring the active status of KiwiSaver accounts during parental leave, the government aims to ease this disparity.
Key Tax Adjustments
Another significant adjustment is aligning the trustee tax rate with the top personal tax rate of 39%. This alignment aims to ensure equitable taxation regardless of income source. To prevent over-taxation of lower-income trusts, a $10,000 de minimis threshold has been introduced, affecting only a small percentage of trusts in New Zealand.
The legislation also enacts an OECD-led global tax initiative, requiring large multinationals to pay a minimum tax rate of 15% in participating countries. Additionally, adjustments to the tax treatment of back-dated lump sum payments from ACC and MSD aim to ensure fair taxation practices.
The Taxation Bill is slated to become law before April 1, 2024. Its passage marks a significant milestone in the government’s efforts to promote financial security, address gender disparities, and strengthen the New Zealand economy.
Unlocking the Future: Expert Insights
As a Financial Advisor at National Capital, I want to emphasise the critical role of KiwiSaver in securing a stable retirement. KiwiSaver is a valuable resource that provides individuals with a structured approach to long-term savings, making it essential for achieving financial security in retirement.
Regarding the recent legislative changes supporting KiwiSaver contributions during parental leave, I’m confident these measures will positively impact individuals’ financial stability. By ensuring that KiwiSaver contributions continue uninterrupted during periods of parental leave, the legislation strengthens KiwiSaver’s effectiveness in providing financial security for individuals and their families.
However, it’s important to note that employees on parental leave can only receive these government-substituted employer contributions if they continue to make their own contributions to KiwiSaver. While this bill would give a lot of support and security to those who need it in a crucial stage of their lives, it will only do so if they do not fall behind on their own contributions. Without maintaining these regular employee payments to KiwiSaver, individuals risk losing all of the benefits of this bill.
Reaching for Ideal Contributions
As reported in our KiwiSaver Value for Money report, the National Capital KiwiSaver Contribution Index has recently dropped further to 4.27%, much lower than the ‘optimal’ index of 6.30%, which is not good for Kiwis’ retirement projections. Based on these currently reported contributions, middle-aged Kiwis will fall significantly short of the lump sum required for a stable weekly retirement income if they do not change.
Our report suggests that this decrease in the index may reflect the impact of the cost of living crisis on New Zealanders. Many Kiwis would prioritise their immediate financial needs over their retirement savings due to increasing pressure from the current rise in expenses.
With this in mind, it emphasises the importance of maintaining regular KiwiSaver contributions at all times, in addition to when the government supports those on parental leave without a consistent income.
Navigating Your Financial Journey
The journey to your ideal retirement is not always simple or straight. As KiwiSaver continues to play a pivotal role in securing financial futures, readers must proactively manage their funds and seek expert advice when needed. Individuals can take meaningful steps towards a more secure retirement by staying informed about their investment options, regularly reviewing their KiwiSaver accounts, and exploring strategies to optimise their savings.
Whether consulting with financial advisors, utilising online resources, or attending educational workshops, numerous avenues are available to enhance financial literacy and make informed decisions about KiwiSaver. It is just as important to remember that every person’s circumstances will be different, and what works for one person is not guaranteed to have the same impact on the next.
To stay on top of your own KiwiSaver movements, and make informed decisions, consult a financial advisor who can provide insights into how you can tailor your contributions to your financial needs. Consider submitting a KiwiSaver Healthcheck through National Capital, a KiwiSaver advice firm. You can use this information to help create the ideal path for your unique financial situation and ensure your future is supported in the best way possible.
Clive Fernandes is the Director of National Capital, a financial advisory firm that provides personalised investment advice, primarily focusing on KiwiSaver.
Disclaimer: The views expressed in this article are the author’s views. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate financial advice from a Financial Adviser to suit your individual circumstances or contact National Capital.
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