What is KiwiSaver all about.....

KiwiSaver is a government-sponsored framework for work-based retirement savings.  The government doesn't manage savings under KiwiSaver - rather, savings are managed by private sector scheme providers.   KiwiSaver is voluntary to join, but compulsory for employers to facilitate.  To encourage membership the Government has offered significant incentives for KiwiSaver.

For those of you that are not already aware, proposed changes to the KiwiSaver Scheme were announced in the Government's 19th May Budget.  These changes aim to make KiwiSaver members and employers more responsible for saving and reduce Government borrowing to fund the KiwiSaver accounts.

Note that the $1,000 kickstart and the first home withdrawal benefits remain unchanged.

Proposed Changes

1.     Compulsory employer contributions will rise from 2% to 3% from 1st April 2013

2.     The minimum employee contribution rate will increase from 2% to 3% for existing and new members from 1 April 2013.  However, members can still choose to select a higher contribution rate of 4% or 8%. 

3.     The Member Tax Credit rate will be halved from $1.00 to $0.50 for every $1.00 contributed by members from 1 July 2011, up to a maximum of $521/year.  These payments are made annually after 30 June of each year so the first payment at the new level will occur in the second half of 2012.

4.     The tax-free status of employer contributions will end and be taxed at an employee's marginal tax rate as from 1 April 2012.

 

Key facts about 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 2 per cent of gross salary and wages before tax.  An option to contribute at 4% or 8% is also available.  Use our Quick KiwiSaver Calculator to work out how much that would be each pay, and what you'll have saved by age 65. 
  • 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
  • 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 $10 per week ($521 per year), credited directly to their KiwiSaver account
  • Employers will be obliged to match their employees' contributions at 2% of gross salary
  • Employer contributions of up to 2 per cent of salary may be exempt from the usual withholding tax of up to 30%.  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 2% 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.

 

The "Opt-in" factors:
  • Belief in rationale
  • $1,000 incentive
  • 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 detailed information Contact Us for advice in regard to choosing a KiwiSaver provider.

This website is operated by Canterbury Financial Services Ltd and is not endorsed by, or affiliated with, the New Zealand Government or Inland Revenue.  Canterbury Financial Services Ltd is using the KiwiSaver trade mark and logo under licence from Inland Revenue.  To view the official New Zealand government KiwiSaver website, please click the logo below 

Back to Top