It’s never too soon to start saving
Starting out early in Kiwi Saver has pitfalls but is never a bad thing, advises Shelley Hanna
QMy 15-year-old daughter has a casual job at a cafe´ , working Saturdays from 7am till 3pm. We are wondering if she could start contributing to Kiwisaver? What is the best way for her to sign up and would she get employer contributions as well?
AWorkers under 18 are not signed up to Kiwisaver by their employer but they can choose to join directly through a Kiwisaver provider. This will involve either contacting a provider through their website, going in to your bank, or getting advice from an Authorised Financial Adviser.
As your daughter is under 16, both parents must sign her application form (she can’t sign up for herself). Children aged 16 and 17 must have their application form signed by at least one parent. Parents must provide their child’s birth certificate showing their names as parents (or provide proof of guardianship).
Once you have signed her up, she will need to ask her employer to start making Kiwisaver deductions. Because she is under 18, her employer is not obliged to make the 3 per cent employer contribution, nor is she eligible for the annual Government top-up.
Is it worth it? If your daughter wants to buy a house one day, then yes — the sooner she starts contributing to Kiwisaver the better. When her balance is big enough, she can look at applying for a First Home grant through Ka¯ inga Ora (worth $3000 to $5000). To qualify she must be over 18 and have been contributing the equivalent of 3 per cent of a full-time salary for at least 3 years. She may not get to that point until she is in her mid 20s but all contributions count towards her eligibility. To assess her eligibility,
Ka¯ inga Ora can go back to the date of her very first contribution and add her contributions over several years to determine how much she may get.
As you may know, there is no minimum wage for those under 16 in New Zealand. The starting out wage is $15.12 – usually these are workers aged 16 to 17 in the first 6 months of their job, and some workers aged 18-19. If your daughter is paid the starting out wage and earns $121 gross over the 8 hours that she works each week in the cafe´ , at 3 per cent she will be contributing just $3.63 to Kiwisaver ($189 per year). She will not see much growth on that, but as she gets older her hourly rate will increase and she may get more work, particularly over the holidays. Her Kiwisaver balance will grow.
The downside of starting with very modest contributions is the impact of fees. Many Kiwisaver providers charge a fund manager fee as a percentage (around 1 per cent) as well as a fixed amount for administration.
This fee varies from $0 to $49.80 per year, with most providers charging $23 to $36 per year. It may not sound like much, but this fixed amount can erode a small balance very quickly.
You can find out the charges of the various fund managers by looking up the latest Morningstar Kiwisaver report online.
This shows both the annual management fees for the various providers and funds as well as the monthly admin fee. Or you can look up these fees on the Sorted Kiwisaver Fundfinder website.
If you are concerned that your daughter’s savings will be eroded by fees, you can consider topping up her Kiwisaver over the first year or two to cover the fees.
Your input at this stage is invaluable. It is difficult for young people but your encouragement and support can help.