KiwiSaver value to business operator

Q. I’m self-employed and I can’t see the benefit of being in KiwiSaver. Can you help?

A. I can see why KiwiSaver might not have quite the same appeal to someone who is self-employed.

When you’re working for someone else, you can usually get a contribution from your employer equivalent to 3% of your salary, in addition to your own contribution (some businesses have managed to negotiate deals with their staff that mean the employer 3% comes from the worker’s total salary package, which isn’t ideal, in my view, but that’s probably another column).

When you’re self-employed, all your contributions are coming from you.

But there are still good reasons to be in KiwiSaver. If you put in at least $1042 a year, you’ll get the full member tax credit of $521 from the Government. That’s a 50% return on your investment, which is pretty decent.

If you’re planning to buy a first house at some point in the future there can be benefits in KiwiSaver, too.

Depending on whether you meet the income criteria, if you withdraw money from KiwiSaver to buy, you could qualify for a First Home Grant or First Home Loan (the grant also has a house price cap, and the price of the property will have to be under that).

There is also more scrutiny on fees in KiwiSaver than there perhaps is on other managed funds, which could help to keep your costs lower over your investing lifetime than they might otherwise be.

But there are drawbacks to KiwiSaver – the money is locked away until you are 65 or buy a house.

You might decide to just put a minimum amount into the scheme and focus on planning for retirement with other investments. Maybe you want to focus on building up your business so that it becomes an asset to sell in the future.

I’d recommend you get some personalised financial advice so that you can be sure you’re on track, whatever you decide is the right approach to take. Opting out of KiwiSaver, or relying on it less, is fine but you’ll need to know what you’re doing instead.

Susan Edmunds is Stuff’s business editor. Each week, she will answer your money and personal finance questions. You can send yours to susan.edmunds@stuff.co. nz. This information is not intended as personal financial advice and should not replace advice from a professional.