KiwiSaver

Savers:
• Employees are automatically enrolled when they begin a new job and have eight weeks in which to opt out
• Contributions will start from the first pay day
• Existing employees and individuals not employed (e.g. the self-employed or those not in the workforce) can opt into KiwiSaver

• Contributions are deducted from wages at a rate of at least 4 per cent of gross salary and wages before tax
• Members can choose their KiwiSaver scheme and investment risk profile
• Those who do not choose a scheme are randomly allocated to a default scheme provider
• Savers can select their own investment product and can change scheme providers, but can only have one provider at any time
• Enrolment is not automatic for workers under 18, or for existing employees, but they can join if they wish – as can other people, such as beneficiaries and the self-employed

• Savings are primarily for retirement and are locked in until the recipient reaches the age of eligibility for NZ Superannuation or for five years membership, whichever is the later.  Early withdrawals are possible in cases of financial hardship, serious illness, permanent emigration or, after a minimum of three years, to contribute toward a deposit on a first home
• Government will make a $1,000 start-up contribution to each member’s account and contribute towards each member’s fees
• After 12 months of contributions to KiwiSaver, all individuals can stop contributions for up to five years at a time
• Also after 12 months, half of regular employee contributions can be diverted to mortgage payments on the family home
• A home deposit subsidy will be available to qualifying first home buyers who are saving through KiwiSaver.  Eligibility will be subject an income cap and a regional house price cap.
• The Government will match member contributions with a tax credit of up to $20 per week ($1,040 per year), credited directly to their KiwiSaver account
• Employers will be obliged to match their employees’ contributions under an arrangement to be phased in over four years, although the government will offset much of the additional cost
• Employer contributions of up to 4 per cent of salary may be exempt from the usual withholding tax of up to 33%.  The exemption can provide a significant boost to savings.

Employers:
• Enrol new employees in KiwiSaver and existing employees who choose to opt in
• Deduct employees' contributions and forward them to the IRD along with PAYE, along with any matching contributions
• Aim is to minimise compliance costs where possible
• The automatic enrolment provisions will not apply in workplaces where the employer is already running an approved work-based scheme that is portable, open to all new permanent (including part-time) employees, the minimum employee contribution combined with the maximum employer contribution is at least 4 per cent and contributions are locked in until retirement age.
• Employees whose employer is exempt from the automatic enrolment provisions will still be able to join KiwiSaver (by opting-in)
• If an employer is merely acting as a conduit or passing on information about KiwiSaver to its employees, or selecting a preferred KiwiSaver scheme for its employees, the employer will not be liable as an investment adviser or promoter under the investment advisers and securities legislation

The Government:
• Makes a $1,000 kick-start contribution to each member’s account, to be locked in until the recipient is eligible for NZ Superannuation or for five years of membership, whichever is the later
• Will make a contribution towards members’ fees and match their contributions via  a tax credit
• Offers a first home deposit subsidy of $1,000 per year of membership in the scheme, up to a maximum of $5,000 for five years, to qualifying KiwiSaver members after at least three years of saving

• To minimise the compliance costs for employers, KiwiSaver will be administered by Inland Revenue which:
• Receives the contributions and channels them to the individual’s chosen KiwiSaver scheme
• Receives notification from employees wishing to opt out or take a contribution holiday and advises the employer accordingly

Assumed take-up rates:
The government tax credits for members and compulsory employer matching contributions are expected to significantly boost take-up rates.  Treasury expects 50% of employees to take up KiwiSaver.

“Opt-in” factors:

• Belief in rationale
• $1,000 incentive
• Fee subsidy
• Government matching via tax credits
• Matching employer contributions (tax free)
•     Home Deposit Subsidy
• By Default

What about employers with existing schemes:
5 Options:
•    Apply to become a KiwiSaver exempt scheme.
• Wind up the scheme.
• Add a KiwiSaver option.
• Convert to KiwiSaver.
• Create a KiwiSaver scheme for employees.
 

For more information on KiwiSaver Contact Us today!