Op-Ed: Money for jam

Shakespeare asked ‘What’s in a name?’ When it comes to the free money you get if you are saving regularly in KiwiSaver, the answer may be ‘quite a lot’.

That free money each year – all $521 of it – is called a ‘member tax credit’ or MTC. Two million people are eligible to receive it if they’ve saved $1,043, which is a bit more than $20 a week, by the end of June each year.

It’s money for jam, but last year fewer than half of those eligible got the full amount.

There are plenty of reasons why people miss out, but one of them may be because of the name, and some KiwiSaver providers want to see it changed.

The Commission for Financial Capability has heard from people who are confused by the name and think they won’t get a member tax credit because they aren’t working or they don’t have $1,043 to invest as a lump sum.

But you don’t have to be employed. You’ll get it if you are over 18 and contributing, though it stops when you reach the age of eligibility to withdraw your KiwiSaver funds, which is either at age 65 or after you have been a member for five years, whichever is later.

And you don’t have to save the full $1,043: you’ll still get 50 cents back for every dollar you save up to that amount. So if you save $400, the government will pay in $200.

Last year 573,000 didn’t collect anything at all and more than a million people walked away, leaving some money on the table. Not a good look.

But is it such a big deal? We decided to run the numbers.

At first glance, the member tax credit seems like pocket money: the $521 you receive works out to $10 a week. How much difference could it make?

But hold on – since we’re talking long timeframes, we need to look at what this means over the decades that we’ll be in KiwiSaver. When you look at how money works over time, small amounts grow into serious money.

Here’s the answer: $35,901. That’s our estimate for what that $521 a year contribution will be worth for someone in KiwiSaver who starts now at age 18. By the time they’re 65, and adjusting for fees, taxes and inflation, getting that annual contribution will mean they have $35,901 more.

So the question becomes: which would you rather see yourself with – $35,901 more, or much less? For many of us that amount is more than an entire year’s income in retirement (especially when it supplements NZ Super). Or it’s a swish car or boat, a few holidays, a house renovation… the list goes on and on.

Here we are again this year, with June fast approaching. There’s still time to top up your account, and now is the perfect moment to set up a $20 automatic payment to make it easier to get the full amount next year.


By Tom Hartmann