Confusion reigns on member tax creditsPosted to Financial Capability on 30-08-2017
New research has uncovered confusion and misunderstanding that prevents hundreds of thousands of Kiwis from getting the best out of their KiwiSaver and improving their long-term financial wellbeing.
The Commission for Financial Capability is calling for action from providers to ensure that more people in KiwiSaver receive one of its main benefits: the $521 member tax credit (MTC) paid to members by the government.
The research found that almost half of KiwiSaver members had not heard of the term “member tax credit”. When it was explained to them, 25% were still none the wiser.
People were even unclear about their own funds: of those who knew about MTCs, some thought they hadn’t received any money when they had. Some thought they had been paid the full amount of $521 when they hadn’t.
The Commission’s education manager David Boyle said: “There’s clearly a lot of confusion, which is frustrating given that KiwiSaver has been with us for ten years. There’s been plenty of time to address this growing issue.
“Some KiwiSaver providers have told us that the barrier is affordability. Inland Revenue has surveyed a broad range of members to improve understanding about what was stopping them getting some or all of their MTC and to test the affordability theory.
“The research shows that while it was part of the issue, there were other reasons why people missed out. Many said they would have saved in KiwiSaver if they had known about the MTC and they expected their providers to communicate more clearly.”
Last year 1.1 million members missed out on the full MTC. Worse still, of that number 580,000 received nothing at all which means they didn't save anything.
One in three of those who didn’t get the full amount said it was because they didn’t know enough, if anything, about it. And 62% of them said that they would be more likely to save enough if they had known.
Interestingly, 39% of people who didn’t get the full MTC said they weren’t on a salary or wage and simply forgot to set up a payment.
David added: “It’s disappointing that Kiwis are missing out on money which could help them in the future when they decide to stop work finally.
“It’s the best-known return anyone is going to get on their savings. Simply put, those who are eligible are getting a 50% return on every dollar up to $1,043 a year.
“But once that year goes by, you can’t go back and claim it later. That's why it is so important to act now and make sure you don't miss out next year. We had always suspected that awareness was an issue. This research confirms that’s the case and we would encourage providers to do more to get the message out about MTCs.
“It’s worth acknowledging that some are making it a greater priority than others. More action in this area is a win/win for both providers and members. At the Commission we will be looking at our own messaging on this topic, and continue to explore what we can do to help reduce this lost opportunity.”
The research came from a survey of 1,800 people by Inland Revenue.
It found the top three actions that helped members save enough to get the full MTC were:
- Choosing a contribution rate that meant they saved $1,043 annually
- Monitoring their contributions
- Paying a lump-sum at the end of each financial year.
The easiest way for people who aren’t paid via PAYE to make sure they never miss out again is to set up a direct debit for $20 a week.