Kiwisaver - questions and answers

• Introduction of the State Sector Retirement Savings Scheme, a voluntary savings scheme aimed specifically at state sector employees;
• Establishing the New Zealand Superannuation (NZS) Fund, aimed at pre-funding the future cost to the government of NZS.

KiwiSaver’s purpose is to encourage a long-term savings habit and asset accumulation to improve financial wellbeing, particularly for retirement.

KiwiSaver also offers a first home deposit subsidy of $1000 per year of membership in the scheme, up to a maximum of $5000 for five years, to eligible KiwiSaver members after three years of saving.

Under the proposal:

• All New Zealand residents below the age of eligibility for New Zealand Superannuation will be able to opt in to KiwiSaver;
• Contributions will be at 4 per cent or 8 per cent of gross salary or wages before tax and will be “locked in” except for certain circumstances (such as serious financial hardship, or permanent emigration);
• After a minimum of three years in the scheme, first home buyers will be able to make a one-time withdrawal to assist with the purchase of a first home;
• Self employed, people under 18, current employees and beneficiaries may join but need to make payments directly to Inland Revenue or providers;
• The government will make a kick start contribution of $1,000 per person (to be locked in until the recipient reaches the age of eligibility for NZS or for five years of membership, whichever is the later) and provide a contribution towards members’ fees.

The government wants to ensure that a broad group of New Zealanders can save through KiwiSaver for their retirement.

The following table shows the options for different groups to join KiwiSaver:

• Those who would be better off repaying debt;
• Those who may not wish to save or are saving for something else;
• Those on low incomes and for whom New Zealand Superannuation may provide an adequate income in retirement.

It is recognised that each individual’s circumstances will be different. KiwiSaver is another option for New Zealanders to increase their own well being and financial independence, particularly in retirement.

International research suggests that automatic enrolment leads to higher participation in retirement savings schemes, as it helps overcome inertia, which prevents some people saving.

Automatic enrolment will apply to all new employees aged between 18 and 65 (age of eligibility for New Zealand Superannuation) who begin a job with a separate payroll (it will not apply to an employee who gets a promotion with their current employer).

An employee will be able to opt-out by notifying Inland Revenue in weeks 2-6 after starting employment. This period gives employees time to consider the decision of whether or not to join KiwiSaver, and to seek financial advice if desired. If an employee opts out, Inland Revenue will notify their employer.

All KiwiSaver members will be able to:

• Choose their own KiwiSaver scheme and investment risk profile, such as conservative, balanced, growth;
• Choose a contribution rate of either 4 per cent (default rate if no choice is made) or 8 per cent of the gross salary or wages before tax paid by the employer (an employee will be taxed on these contributions as with other income);
• Transfer between KiwiSaver schemes at any time;
• Cease contributions by applying to Inland Revenue for a contributions holiday after a minimum contribution period of 12 months. The contribution holiday will be for a period of up to 5 years (minimum three months) and can be renewed at the end of the period.

Individuals will be given information to help them make decisions about KiwiSaver. Members will be able to select their own investment product and can change scheme providers, but can only have one KiwiSaver scheme provider at any time.

Employees will be randomly allocated by Inland Revenue to a provider of a default scheme with a conservative investment profile unless they make an active choice to become a member of a scheme or their employer has nominated a preferred scheme to which their employees will become members.

• Distributing an information pack about KiwiSaver, provided by Inland Revenue, to new employees and employees that opt in outlining how the scheme works;
• Automatically enrolling new employees that do not opt out;
• Deducting employees' contributions and forwarding them to Inland Revenue along with PAYE;
• Providing Inland Revenue with the name, IRD number and address of new employees and employees that opt in via the employer.

KiwiSaver investment products will be regulated consistently with other superannuation products. Only registered providers will be able to offer KiwiSaver schemes.

These providers will need to be registered, meet certain minimum ongoing requirements and disclose information to help people make a choice. The government does not guarantee any individual scheme.

The government will also appoint the providers of the KiwiSaver default schemes, negotiate fees down with providers of default schemes, and pay a contribution towards fees paid by the member.

The government will provide additional targeted assistance to individuals purchasing a first home. Individuals who have saved for at least three years, and meet the eligibility criteria, will be entitled to a home ownership deposit subsidy of $1000 per year of savings, up to a maximum of $5000 per person.

• An ability for KiwiSaver participants to make a one-off withdrawal of their own savings to use for the purchase of a first home (excluding the initial government contribution), following a minimum of three years participation;
• A deposit subsidy to people who have contributed to KiwiSaver for at least three years to assist with the purchase of their first home. This will be $1000 for each year of contribution, up to a maximum of five years. Regional house price caps and household income caps will be used to target this assistance.

Employers will be required to:

• Provide all new employees and those who opt-in via a tax code declaration with a KiwiSaver information pack, supplied by Inland Revenue. This pack will include general information about the KiwSaver scheme, where to obtain more information and an opt-out form;
• Notify Inland Revenue that a new employee has started and pass on the new employee’s name, IRD number and address. This requirement will apply also to employees who have opted in via a tax code declaration;
• Automatically enrol new employees by ensuring contributions commence from week 11 for all new employees if no advice is received from Inland Revenue that the employee has opted out;
• Make deductions of KiwiSaver contributions from the gross salary or wages before tax paid to employee members.

Employers will be able to choose whether or not to:

• Elect an initial provider for their employees who do not select their own KiwiSaver scheme provider. If an employer has elected a preferred KiwiSaver scheme for their employees, the employer will be required to provide an investment statement for that scheme to all new employees and those that opt-in via a tax code declaration;
• Make voluntary employer contributions to KiwiSaver. Generally, an employer will be able to determine their own rules and conditions around such contributions;
• Apply to the Government Actuary for an exemption from the automatic enrolment requirements if they have a registered superannuation scheme that meets certain criteria. This aims to ensure that KiwiSaver does not encourage good employer schemes to wind up. Employees who join such schemes will be eligible to apply for the home ownership deposit subsidy, subject to meeting eligibility criteria, but will not be eligible for any other government contribution, i.e. $1000 kick start or fee contribution.

In addition, an employers’ current superannuation scheme may choose to convert to a KiwiSaver scheme under their existing trust deed.

• Open to all new permanent (including part-time) employees;
• Portable (members can transfer balances to other schemes when they leave their employer);
• The minimum employee contribution combined with the maximum employer contribution is at least 4 per cent of gross salary; and
• Employer contributions vest in the employee within 5 years of the employee becoming a member of the scheme.

Employees whose employer is exempt from the automatic enrolment provisions will still be able to join KiwiSaver (by opting-in).

In addition, an existing employer scheme has the option of converting into a KiwiSaver scheme under their existing trust deed.

If an employer is merely acting as a conduit or passing on information about KiwiSaver to its employees, or selecting a preferred KiwSaver scheme for its employees, the employer will not be liable as an investment adviser or promoter under the investment advisers and securities legislation.

If an employer is merely acting as a conduit or passing on information about KiwiSaver to their 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.