KiwiSaver

KiwiSaver affects every New Zealand employer. The legislation introduced by Government imposes obligations on all employers, and it is important that employers understand those obligations and take appropriate measures.

KiwiSaver is an initiative formulated by Government for the purpose of encouraging the level of savings of New Zealanders, especially saving for retirement. KiwiSaver will principally (although not exclusively) be a work-based scheme in which continuing membership will be voluntary, but with a compulsory provision such that specific action will be required of any enrolled employee in order not to continue in, and therefore not to be required to contribute to, a KiwiSaver scheme. KiwiSaver commenced on 1 July 2007, but compulsory employer contributions and other requirements took effect on 1 April 2008.

National Benefits has the experience and expertise to advise employers on how to optimally respond to the KiwiSaver regime.

Key Features

The key features of KiwiSaver are as follows. These have been updated following the changes to KiwiSaver announced by the Minister of Finance in Budget 2007 on 17 May 2007:

Automatic Enrollment

Effective 1 July 2007, every person who has attained the age of 18 years, but has not attained the ordinary age of qualification for New Zealand Superannuation (currently age 65 years), who commences employment in a new job will be automatically enrolled in a KiwiSaver scheme (unless the person's employer has applied for and gained an exemption from that automatic enrolment provision).
Employers who sponsor a registered superannuation scheme and who meet a number of criteria will be able to obtain an exemption from the automatic enrolment provisions of KiwiSaver in respect of employees who commence employment on or after 1 July 2007.
Even if an employer gains an exemption from the automatic enrolment provisions of KiwiSaver, any of its employees can elect to join any KiwiSaver scheme of their choice, and in that circumstance the employer will be required to undertake various KiwiSaver functions.

Opt-Out Option

Employees who become enrolled in a KiwiSaver scheme will have a six week period in which to opt out of the scheme or to continue membership.
The six week opt-out period commences two weeks after the start date of the employee's new job, and ends eight weeks after that date.
Employees who elect to opt out of the scheme in that six week period must do so by completing the requisite form and submitting it either to their employer or to Inland Revenue.
New employees who do not elect to opt out of the scheme must make contributions to a KiwiSaver scheme for a minimum period of one year, commencing on the date on which they start their new job.

Choice of Scheme

Employees may choose to join any KiwiSaver scheme they wish, and may transfer between KiwiSaver schemes at any time they wish (subject to employer's consent if last change occurred less than than three months prior).
Employers will be able to choose a KiwiSaver scheme for the entry of employees who do not choose a KiwiSaver scheme themselves.

Government Kickstart

Members who do not elect to opt out of KiwiSaver will receive a one-off tax-exempt $1,000 kick-start contribution from government, paid into their KiwiSaver scheme account.

Employee Contributions

The rate of contributions to a KiwiSaver scheme is either 4% or 8% of the employee's total taxable earnings from the job, as elected by the employee. There are no other rates available for contributing employees.
Effective 1 July 2007, member contributions to a KiwiSaver scheme will attract a 1:1 non-taxable Member Tax Credit up to a maximum of $20 per week. The Member Tax Credit will be paid annually in arrears following application by the KiwiSaver provider, and credited directly to the member's account.

Employer Contributions

Effective 1 April 2008, employers will be required to contribute 1% of total taxable pay on behalf of any employee who joins KiwiSaver, unless the employer is making qualifying contributions of at least that rate to another super scheme on behalf of the employee. The compulsory rate will increase to 2% on 1 April 2009, then to 3% on 1 April 2010, and finally to 4% on 1 April 2011.
Effective 1 April 2008, each employer will qualify for receipt (through the PAYE tax system) of an Employer Tax Credit equal to the lesser of its contributions on behalf of each KiwiSaver member and $20 per week.
Effective 1 July 2007, employer contributions to a KiwiSaver scheme will be exempt from SSCWT (Specified Superannuation Contribution Withholding Tax) to the lesser of 4% of each member's total taxable pay and the rate of contributions made by the member.

Inland Revenue Department

Inland Revenue will have a central role in the administration of KiwiSaver. For example, employee and employer KiwiSaver deductions will be remitted to Inland Revenue by employers, alongside PAYE tax payments.

Administration Fee Subsidy

Effective 1 July 2007, government will subsidise the administration fees of each member of a KiwiSaver scheme by $40 per annum.

First-Home Buyer Subsidy

Limited application: A government subsidy is available for each KiwiSaver member who purchases a first home in the bottom 25% of average values of the region in which the home resides, provided that member household income is not above prescribed limits set by government. Each first home buyer who has been a member of (but has not necessarily contributed for the full period to) a KiwiSaver scheme for a period of three years, could be entitled to a subsidy of $3,000, increasing to $4,000 after four years' membership and a maximum of $5,000 after five years' membership.

Mortgage Diversion Facility

KiwiSaver schemes may (but are not required to) include a mortgage diversion facility whereby up to 50% of a member's contributions may be diverted to mortgage payments on the member's principal place of residence. Such payments are subject to the agreement of each member's mortgage provider.

Contribution Holiday

Contributing members of a KiwiSaver scheme can, after a minimum contribution period of one year, apply for a contributions holiday of between three months and five years inclusive. Approval of the application and its period is at the sole discretion of the Commissioner of Inland Revenue.
On or prior to completion of any contributions holiday period, any KiwiSaver member may apply for a further contributions holiday period of between three months and five years inclusive. There is no maximum number of contributions holiday periods which any member may consecutively apply for.

Retirement Age

KiwiSaver members' savings are ordinarily locked in until they attain the usual age of eligibility for New Zealand superannuation (currently age 65 years), or until completion of a minimum period of membership of five years, whichever occurs later.

Advice for Employers

If you feel that your organisation could benefit from independent advice in relation to the new KiwiSaver regime, and its impact on any existing superannuation scheme which your organisation has, please contact us.