Self-employed pay directly into funds
But keep some regular savings too to cover the unexpected says
Q
I have been working as an electrician and contributing 3 per cent of my salary to KiwiSaver since 2012. I have given notice at work and will be self-employed from the beginning of May. Do I have to continue my KiwiSaver contributions and how will I go about it if I am not in a PAYE situation? If I’m not getting the employer contribution, should I save into a more accessible account instead?
A
As soon as you stop working as an employee, your KiwiSaver contributions (and employer contributions) will stop. You don’t need to notify anyone of your change in circumstances. Inland Revenue will no longer process your KiwiSaver payments — you will need to deal directly with your fund manager if you wish to continue with your contributions.
Moving from a salary to selfemployment is a big step, and it may take a while to adjust. Make sure you are working alongside an accountant, so that you can get your cashflow systems organised. It is very important to keep tabs on all incoming and outgoing payments, and budget both for expected and unexpected expenses.
People who are self-employed have more choices when it comes to KiwiSaver, but it is up to you to take action. You don’t have to continue with your contributions — that is up to you. If you choose to keep going, 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 — use the Sorted FundFinder tool for this.
For most people, becoming selfemployed 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. 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, serious illness, a first home purchase or emigration) so a 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 the full Government top up each year to age 65, and that is what many self-employed people choose to contribute, directing other surplus income into cash reserves.
Shelley Hanna is a Financial Adviser with Peak Portfolio Management Ltd which holds a licence FSP702451 issued by the Financial Markets Authority to provide financial advice services. Disclosure information is available at www.peak.net.nz or call 06 8703838. The information provided in this article is of a general nature and should not be relied on as a recommendation to invest in a financial product. Send your KiwiSaver questions to shelley. hanna@peak.net.nz