KiwiSaver - the facts

KiwiSaver is a national initiative to promote long term retirement savings. It is not intended to supersede existing superannuation arrangements, but to provide a vehicle for all employees to be able to save by way of direct deduction from their salary or wages. It is also open to most people who aren't employed. KiwiSaver schemes are managed independently of the government by investment providers such as FANZ.

KiwiSaver started on 1 July 2007.

The KiwiSaver legislation applies to most employees who are New Zealand citizens, or entitled to be in New Zealand indefinitely under the Immigration Act 1987. If an employer pays employees based in New Zealand through the PAYE system, they must usually enrol those who start a new job in KiwiSaver, and will have to make deductions from their gross salary and wages and pay these to the IRD, beginning on their first pay run. An employee who is enrolled but does not want to be a KiwiSaver can opt out in a set period after starting the new job. A person who wishes to join KiwiSaver but doesn't start a new job can also join.

The minimum contribution rate is 4%, but the employee can also elect a rate of 8%. At present any employer's contribution can count towards the 4% minimum, as long as it vests immediately in the employee and the employee agrees. This may change from 1 April 2008. The employer is responsible for deducting the appropriate amount from the employee's gross salary and wages and paying this to the IRD who will then forward contributions to the scheme provider.

To find out more about the how FANZ and KiwiSaver might work for you, read our KiwiSaver FAQ page, the attached FANZ KiwiSaver and Investment Statement (PDF 900KB), refer to the Government's KiwiSaver website, refer to the Retirement Commission's Sorted website, or contact us for advice on how to get started.

• Where do I go for more information?
• The 2007 Budget. What's new?
• How will it work?
• How will KiwiSaver affect employers?
• Is it a requirement that all employers offer KiwiSaver to their employees?
• What happens if an employee does not opt out and wants to stop contributions within the first year?
• Which new employees do not have to be automatically enrolled in KiwiSaver?
• Do employers have to give financial advice?
• How should employers assist employees who request financial or provider advice?
• How will employees know when their contributions have been received safely by the IRD, passed on their chosen provider and invested?
• What ongoing reporting about their savings will employees receive?
• Will employers know to which provider employer contributions are going?
• Where can I find case studies?

Where do I go for more information?

More information is available at www.kiwisaver.govt.nz. The website includes a link to an online tool to help you estimate how much you can save with KiwiSaver.

The Sorted website now hosts the "Sort Me" tool - a free online financial check-up that aims to assess just how financially sorted you are. The Sorted website also has a KiwiSaver calculator which you may find helpful.

Your employer should also have received copies of the IRD KiwiSaver Employee Information Pack to give you.

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The 2007 Budget. What's new?

People who save through KiwiSaver and meet the qualifying criteria will benefit from a tax credit contribution that matches their contribution, up to a maximum of $20 per week ($1,042.86 per year).

For those who are employees, compulsory matching employer contributions are proposed to be phased in from 1 April 2008.

These additional contributions will increase the funds available to members on retirement, helping to improve the adequacy of retirement incomes.

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How will it work?

Benefits

• All KiwiSaver members will be entitled to a $1,000 kickstart from the Government.
• All KiwiSaver members will be entitled to an annual fee subsidy, currently of $40.
• All member contributions to KiwiSaver (and complying superannuation funds) will be matched by a tax credit of up to $20 per week ($1,042.86 per year) that will be paid directly into their KiwiSaver account (or complying superannuation fund, or a combination of both).
• From 1 April 2008, most employees contributing to KiwiSaver (and complying superannuation funds) will, under current proposals, also be entitled to a matching employer contribution as follows:

• After three years of saving, some savers that are first home buyers will be eligible for a housing deposit subsidy of $1,000 per year of saving, up to $5,000 in total. Eligibility for the subsidy is determined by the individual's income and house price caps.

Participation

• Employee contributions will continue to be voluntary.
• From 1 July 2007, most new employees will be automatically enrolled in KiwiSaver, but can choose to opt out.
• Existing employees will be able to opt in. New employees whose employer is exempt from automatic enrolment will also be able to opt in.

Contributions

• The contribution rates from gross salary will be either 4 per cent or 8 per cent. The contribution rate will be 4 per cent unless the higher rate has been elected by the employee.
• From 1 April 2008, employer contributions will, under current proposals, not be able to count towards the minimum 4 per cent contribution for new KiwiSaver members. Transitional rules are proposed for those employees who join prior to 1 April 2008 and contribute less than 4 per cent themselves.
• Anyone will be able to join KiwiSaver by contracting directly with a scheme provider and making contributions. These contributions can be of any amount subject to a provider's agreement and will in many cases be eligible for the matching member tax credit contribution.
• Any time after an initial 12 month contribution period an employee will be able to apply to Inland Revenue for a contributions holiday.

If you are self employed or not employed

• You will, in most cases, be able to join KiwiSaver by contracting directly with a KiwiSaver provider.
• Your contribution rate will be agreed with the scheme provider.
• You will receive the $1,000 KiwiSaver kickstart and annual fee subsidy, currently of $40 per year.
• If you meet the qualifying criteria your contributions will be matched by a tax credit of up to $20 per week ($1,042.86 per year).

Withdrawals

• Contributions are generally locked in until the age of eligibility for New Zealand Superannuation (currently 65 years of age) or five years of membership, whichever is the later.
• Exceptions will be made for some funds to be withdrawn for the purchase of a first home, significant financial hardship, serious illness and permanent emigration.
• After one year of being enrolled in a KiwiSaver scheme, individuals will, subject to certain conditions, be able to divert up to half of their own contributions to make mortgage payments on their principal place of residence, for those schemes that offer what is called a "mortgage diversion" facility. These contributions will not be eligible for the member tax credit.

Choice of Scheme

• Savers can select their own KiwiSaver scheme and investment products and can change schemes or investment products at any time.
• Savers who do not specify a KiwiSaver scheme are allocated by Inland Revenue to a conservative investment strategy fund with one of six named default KiwiSaver scheme providers.
• Savers can only have one KiwiSaver scheme at any point in time.

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How will Kiwi Saver affect employers?

KiwiSaver has been designed to minimise compliance cost for employers where possible by building off existing processes.

Employers will be required to:

• Provide all new employees* and those who wish to opt in with a KiwiSaver information pack supplied by Inland Revenue. This pack includes general information about KiwiSaver, where to obtain more information and an opt out form.
• Notify IRD 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 directly.
• Notify IRD that an employee who was automatically enrolled has elected to opt out.
• Automatically enrol new employees and ensure contributions commence by making deductions from their first pay.
• Make deductions of KiwiSaver contributions from relevant employees' gross salary or wages and pay them to the IRD. The filing of information can be aligned to the monthly filing schedule.
• Manage opt out and contribution holiday schedules (information from IRD and employee).

* These requirements do not apply if the employer is an "exempt employer".

Employers will be able to choose whether or not to:

• Select a preferred provider for employees who do not choose their own KiwiSaver provider. If the employer has selected a preferred scheme for employees, the employer must provide an investment statement for that scheme to all new employees and those who opt in, as well as a statement outlining the effect of the employer's choice for employees who do not select their own scheme.
• Make employer contributions to KiwiSaver. Specified Superannuation Contribution Withholding Tax (SSCWT) will not apply to employer contributions up to a cap of lesser of the employee's contribution or 4% of the employee's gross salary.

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Is it a requirement that all employers offer KiwiSaver to their employees?

No. Although most employers will have to provide their employees access to KiwiSaver, there are some exceptions:

• employers who provide access to a superannuation scheme meeting certain conditions and have been granted "exempt employer" status, but only in relation to automatic enrolment of new employees - existing eligible employees are still entitled to opt in;
• employers who do not pay employees via the PAYE system; and
• non state-sector employers who do not have employees resident in New Zealand

What happens if an employee does not opt out and wants to stop contributions within the first year?

If an employee does not opt out (perhaps by mistake) and complains about the 4% deductions, they must continue to make the contributions for one year, unless the IRD allows a late opt-out. If they find this too hard financially, they may apply to the Commission of Inland Revenue for a contribution holiday after 3 months of contributing.

Which new employees do not have to be automatically enrolled in KiwiSaver?

The following new employees do not have to be automatically enrolled in KiwiSaver:

• those under 18 or over NZ Superannuation eligibility age;
• those that have changed jobs and remain on the same payroll (eg: promotion);
• when the company has been taken over but the new employer is carrying on the same business and the IRD has been notified;
• if the employee is not paid through the PAYE system (eg: contract workers);
• those that are already KiwiSaver members (employees must disclose this and provide a KiwiSaver deduction notice);
• casual agricultural workers (employed less than 3 months) or other short term workers (employed less than 4 weeks);
• employees who are not New Zealand citizens or entitled to be in New Zealand indefinitely under the Immigration Act 1987.

An employee cannot open an account in the name of a family trust or company, as a KiwiSaver member must be a 'natural person'

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Do employers have to give financial advice?

No. The IRD will provide KiwiSaver information packs and if an employer has chosen a preferred scheme, the provider of that scheme will supply investment statements. These will give employees an outline of how KiwiSaver and (if applicable) the relevant preferred scheme works.

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

How should employers assist employees who request financial or provider advice?

KiwiSaver information packs contain a statement directing employees as to where they can obtain advice about KiwiSaver.

An SBS Financial Adviser can be available to assist employees who need advice.

How will employees know when their contributions have been received safely by the IRD, passed on to their chosen provider and invested?

IRD is planning a web site for employees to view their contributions that have been paid.

FANZ will issue a "welcome letter" to new members of the Lifestages KiwiSaver Scheme within one week of receiving the member's information from the IRD. Within one week of the initial contributions being received from the IRD, FANZ issues an initial opening statement to KiwiSaver scheme members. This will be after 90 days from the first contributions being deducted from the employee's pay as contributions initially go to the IRD who hold them for 3 months before paying to the provider. Interest on contributions will be paid by the IRD for this period.

What ongoing reporting about their savings will employees receive?

FANZ will provide an annual member statement for the Lifestages KiwiSaver Scheme within five months of balance date (31 March in each year).

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Will employers know to which provider employer contributions are going?

Usually not, unless employers have set up a KiwiSaver with a specific provider and the employee hasn't changed schemes.

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Where can I find case studies?

Case studies can be found at:
http://treasury.govt.nz/budget2007/kiwisaver/saversfact.asp

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