Overseas job conundrum
Student loans come with specific obligations, says
Can I use KiwiSaver to pay for my student loan when I leave New Zealand? I have got a job offer in Perth and I have decided to go there soon.
KiwiSaver is designed as a long-term savings scheme to help New Zealanders financially in retirement. Your money is locked in to age 65 except in cases of first home purchase, permanent emigration, significant hardship, serious illness or death. Unfortunately for you, KiwiSaver cannot be used to repay your student loan.
New Zealanders who study here are subsidised by the government through the course of their tertiary education. The government would like a return on their investment in your education — working and paying taxes here rather than heading off overseas. To encourage graduates to remain in New Zealand, student loans are interest-free as long as the borrower lives here. If you travel overseas for more than six months interest will be charged to the balance owing — and it is backdated to the day after you left New Zealand. You should notify Inland Revenue as soon as you leave and they will classify you as an overseas-based borrower. The interest rate has dropped over recent years and is currently 4.3 per cent per annum.
There are certain exemptions, for example if you are studying or working for the Government overseas, or volunteering. To apply for an interest-free exemption your application must be in writing and you need to provide evidence.
You can put your student loan repayments on hold with a repayment holiday. A repayment holiday lets you take a break from repaying your student loan for up to 12 months, but interest is still added to your loan during this time. You must apply for a repayment holiday before you go overseas, or within six months of leaving New Zealand.
All overseas borrowers not on a repayment holiday are required to make two minimum repayments (based on the size of their student loan) on or before September 30 and March 31 each year.
You should let Inland Revenue know as soon as you return to New Zealand. In order for your student loan to be interest-free again, you will need to live in New Zealand for at least 183 consecutive days to become a New Zealand-based borrower. Then all the interest applied to the loan since your return will be written off.
If you decide to stay in Australia, you can apply to transfer your KiwiSaver funds to an Australian complying superannuation scheme. There are advantages and disadvantages in doing this. KiwiSaver has a First Home (and Second Chance) withdrawal option that is not offered to members of Aussie Super so you may be better off leaving your KiwiSaver here — in case you choose to return some day.
Even if you stay overseas for many years, you are not obliged to transfer your KiwiSaver account. Under current rules if a member living overseas leaves their fund to age 65 they can then withdraw all funds (including all Government contributions). All they need is an active New Zealand bank account to which the money can be paid.
Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 06 870 3838 or go to 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
If you travel overseas for more than six months interest will be charged to the balance owing.