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Paul1977

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#143484 16-Apr-2014 13:58
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Maybe someone can tell me if I'm working this out wrong.

The tax rate on the employer contributions of your Kiwisaver are taxed at a rate based on your total income, but this seems like people at the lower end of one salary bracket get less Kiwisaver than people at the higher end of the previous bracket.

E.g.

Salary                                                $57000
Employee Contributions @ 3%              $1710
Gross Employer Contributions @ 3%     $1710
ESCT Tax rate                                    17.5%
Net Employer Contributions                  $1410.75
TOTAL Contributions                        $3120.75

Salary
Salary                                                $58000
Employee Contributions @ 3%              $1740
Gross Employer Contributions @ 3%     $1740
ESCT Tax rate                                    30%
Net Employer Contributions                  $1218.00
TOTAL Contributions                        $2958.00

Is this how it works? If so it seems very unfair for the higher tax rate to apply to the entire employer contribution.

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Kyanar
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  #1026229 16-Apr-2014 14:19
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That is indeed precisely how it works.  Yes, the system is utter crap.

nickb800
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  #1026233 16-Apr-2014 14:37
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Just be glad that you get employee contributions

 
 
 
 


Geektastic
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  #1026234 16-Apr-2014 14:39
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nickb800: Just be glad that you get employee contributions


Quite. The self-employed are at quite some disadvantage in a number of areas. This is certainly one.

I think the self-employed should get greater tax rebates from the government for their Kiwisaver contributions to recognise the fact that they get no employer contribution at all.





Paul1977

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  #1026238 16-Apr-2014 14:48
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Pretty crap, it should be proportional like income tax is (or, heaven forbid, not taxed to help people save for retirement). I wonder how many people get pay rises thinking they've done well without realizing they've crossed one of the salary brackets and are being screwed on the KiwiSaver end of it.

mattwnz
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  #1026289 16-Apr-2014 15:44
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Paul1977: Maybe someone can tell me if I'm working this out wrong.

The tax rate on the employer contributions of your Kiwisaver are taxed at a rate based on your total income, but this seems like people at the lower end of one salary bracket get less Kiwisaver than people at the higher end of the previous bracket.

E.g.

Salary                                                $57000
Employee Contributions @ 3%              $1710
Gross Employer Contributions @ 3%     $1710
ESCT Tax rate                                    17.5%
Net Employer Contributions                  $1410.75
TOTAL Contributions                        $3120.75

Salary
Salary                                                $58000
Employee Contributions @ 3%              $1740
Gross Employer Contributions @ 3%     $1740
ESCT Tax rate                                    30%
Net Employer Contributions                  $1218.00
TOTAL Contributions                        $2958.00

Is this how it works? If so it seems very unfair for the higher tax rate to apply to the entire employer contribution.


That is very interesting. You should ask this question to Mary Holm on the NZ Herald website who is a kiwisaver expert . It does seem illogical to me. 
http://www.nzherald.co.nz/mary-holm/news/article.cfm?a_id=17&objectid=11236846

Kyanar
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  #1026292 16-Apr-2014 15:48
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Paul1977: Pretty crap, it should be proportional like income tax is (or, heaven forbid, not taxed to help people save for retirement). I wonder how many people get pay rises thinking they've done well without realizing they've crossed one of the salary brackets and are being screwed on the KiwiSaver end of it.


It was untaxed.  National screwed us all by taxing it (admittedly, it was to bring it into line with the position existing superannuation schemes.  However, those should have been made tax-free like Kiwisaver, not the other way around).

mattwnz
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  #1026295 16-Apr-2014 15:52
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I wonder if there will be changes in the budget to kiwisaver. I wouldn't be surprised if they removed the tax credits, as they have already halved them, and they need to trim spending to make a surplus this year. They seem to tinker with it , and removed a lot of the incentives. I think if they remove they change the incentives, which is essentially changing the terms, they should allow people to withdraw from the scheme.

 
 
 
 


Geektastic
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  #1026622 17-Apr-2014 09:18
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mattwnz: I wonder if there will be changes in the budget to kiwisaver. I wouldn't be surprised if they removed the tax credits, as they have already halved them, and they need to trim spending to make a surplus this year. They seem to tinker with it , and removed a lot of the incentives. I think if they remove they change the incentives, which is essentially changing the terms, they should allow people to withdraw from the scheme.


And at the end of the day, if they do that, where is the incentive for anyone to bother?

It surprises me that tax free savings here in NZ, either in medium term vehicles like say the ISA used in the UK or in terms of pensions and other retirement savings like Kiwisaver, are so few and far between. No wonder I see so many people who look like they should have retired decades ago shuffling to work on the train when I go into Wellington!





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