Sunday, June 24, 2007

Kiwisaver: The Details

What is it?


KiwiSaver is a voluntary, work-based savings initiative to help you with your long-term saving for retirement.

It's designed to be hassle-free so it's easy to maintain a regular savings pattern.

Work-based saving

For many people, KiwiSaver will be work-based. This means you will receive information about KiwiSaver from your employer, and your KiwiSaver contributions will come straight out of your pay.

What you get when you retire

NZ Super provides for a basic standard of living in retirement, but it may not be enough for the kind of retirement you want.

KiwiSaver is intended to complement NZ Super. Starting KiwiSaver as early as you can could make a big difference to your quality of life later on.

To find out how much you are likely to need in retirement, visit the Sorted website or seek advice from a financial advisor.

Government initiative


The government created the framework for the KiwiSaver initiative, to help New Zealanders financially prepare for retirement.

There is a range of membership benefits to encourage you to get saving, including a $1,000 tax-free kick-start, a member tax credit of up to $1,042.86 per year and subsidised scheme fees. Some people may also be eligible for help with the deposit on their first home.

Who's involved?

The design of the KiwiSaver initiative was an interagency project involving the Treasury, Inland Revenue, the Ministry of Economic Development and Housing New Zealand Corporation.

The ongoing administration of KiwiSaver will be the responsibility of both Government agencies and scheme providers. Employers also play a key role.

KiwiSaver scheme providers


KiwiSaver scheme providers will have the primary relationship with members.

A list of providers with fully-registered KiwiSaver schemes is now available. The official register of KiwiSaver schemes is held by the Government Actuary.

Organisations wanting to provide KiwiSaver schemes must meet specific criteria. An organisation must be certified by Inland Revenue before they can register a KiwiSaver scheme with the Government Actuary.

KiwiSaver schemes are governed by trust deeds and regulated like other superannuation schemes. Scheme providers must meet certain minimum ongoing requirements and disclose information to help people make an informed choice.

Employers

For most people, KiwiSaver is a work-based savings plan so employers play an important role. Employers give new employees and other staff who are interested a KiwiSaver employee information pack (KS3). They also pass their employees' details to Inland Revenue to enable them to be enrolled, and deduct KiwiSaver contributions from employees' gross salary or wages.

Employers can be more actively involved by making employer contributions or choosing a KiwiSaver scheme for employees who don't want to select their own.

Government


Under the KiwiSaver initiative the Government:

contributes $1,000 (tax-free) to each member's savings when they join for the first time
pays a member tax credit of up to $1,042.86 to members who are 18 or over
pays a fee subsidy of $20 into each member's account every six months
funds the first home deposit subsidy through Housing New Zealand for people who meet their criteria
exempts employer contributions to members' KiwiSaver accounts from specified superannuation contribution withholding tax (SSCWT) up to a maximum of 4% of the employee's before-tax pay.
The Government has appointed six "default" KiwiSaver scheme providers for members who don't choose their own scheme. The default providers are:

AMP Services (NZ) Limited
ASB Group Investments Limited
ING (NZ) Limited
Mercer Human Resource Consulting Limited
National Mutual Corporate Superannuation Services Limited (trading as AXA New Zealand)
TOWER Employee Benefits Limited.

These default providers were selected using an open, competitive tender process managed by the Ministry of Economic Development.

There is no Crown guarantee of KiwiSaver schemes or investment products of KiwiSaver schemes. Every investment statement relating to a KiwiSaver scheme must contain a statement to that effect.


How it works


Your KiwiSaver account with your scheme provider is kick-started with a one-off $1,000 tax free contribution from the government. Each pay day your contribution is deducted from your pay for investment through your KiwiSaver account. You can choose to save 4%, or 8% to speed things up. Every year the government will also pay into your account a member tax credit matching the contributions you've made that year, up to a maximum of $1,042.86.


Membership

KiwiSaver membership is voluntary. To join KiwiSaver you must be:

a New Zealand citizen, or be entitled to live in New Zealand indefinitely, and
personally present (or normally present) in New Zealand, and
below the age of eligibility for NZ Super, currently 65.
This means that New Zealand citizens, Australian citizens and people who hold either a New Zealand or Australian residence permit can become KiwiSaver members.

State Sector employees serving outside New Zealand can also join.

People who hold temporary, visitor or student permits cannot be KiwiSaver members.

Joining KiwiSaver

Joining KiwiSaver is easy - either through automatic enrolment when starting a new job or by choosing to join.

Automatic enrolment

If you're 18 years or over, starting a new job with a new employer from 1 July 2007, you may be automatically enrolled. This means that contributions will start to be deducted from your pay on your first payday and will continue unless you opt out. You'll have eight weeks to decide if you want to remain a KiwiSaver member or opt out.

Your employer is responsible for deciding if automatic enrolment applies to you.

There are some exceptions to automatic enrolment. You won't be automatically enrolled if you:

are a casual agricultural worker, election day worker or private domestic worker
are employed on a temporary employment contract of 28 days or less
are on paid parental leave
stay on the same payroll (ie when a business is taken over or amalgamated, or if you relocate with the same employer)
receive payments subject to withholding tax
are not a New Zealand resident
don't normally live here (unless you are a government employee working overseas)
are not required to have PAYE deductions made from your salary or wages.
If you start a new job as a temporary employee or a casual agricultural worker, you will only become eligible for automatic enrolment if your employment is extended beyond four weeks for temporary employees, or three months for casual agricultural workers. Your employer is responsible for deciding if automatic enrolment will apply to you.

Opting in

Other people can choose to join by opting in. This includes:

existing employees aged 18 and over, and temporary and casual workers who can also join through their employer
self-employed people
people under the age of 18
people who are not working, including beneficiaries.
If you opt in to KiwiSaver you can't opt out.

Joining when you're already in a job

If you're already in a job, eligible and want to join KiwiSaver, you can opt in.

If you're 18 or over, you can do this by simply completing the KiwiSaver deduction notice (KS2) and giving it to your employer. KiwiSaver deductions will start from the next pay your employer calculates. We will then allocate you to a scheme.

Alternatively, if you know which KiwiSaver scheme you'd like to join or you're under 18, you should opt in by contacting the scheme provider and applying directly. They'll give your details to us and we'll tell your employer to start deducting contributions from your pay.

Joining if you're self-employed

If you're self-employed, you'll need to choose a scheme provider and apply directly. You and your provider will need to decide how much you'll contribute.

Under 18

People under 18 can join KiwiSaver but only by choosing and contacting a KiwiSaver scheme provider directly.

If a provider of a KiwiSaver scheme accepts a person who is aged under 18 as a member of a KiwiSaver scheme, the contract between the provider and the person must be treated, for the purposes of the Minors' Contracts Act 1969, as if the person were aged 18.

Joining if you're not working

If you're not working, a beneficiary or under 18, you can still join KiwiSaver, but you'll need to contact a KiwiSaver scheme provider and apply directly.

Opting out

If you're a new employee who is subject to automatic enrolment and don't want to become a KiwiSaver member, you can choose to opt out. However, you can't opt out until you've been in your job for two weeks, but you must opt out within eight weeks. If you don't opt out in this timeframe you'll remain a KiwiSaver member and deductions will continue to be made from your pay.

You'll be able to opt out through this website or by completing the opt-out form in the employee information pack you will get from your employer.

If you opt out, any contributions already deducted from your pay will be refunded.

Late opt out

If events outside of your control mean you can't complete the opt-out form within eight weeks of starting your new job, you can apply for a late opt out. We have limited discretion to accept late opt outs for up to three months after receiving your first contribution.

We may accept a late opt-out notice if:

your employer did not supply you with an information pack within seven days of you starting your job
we did not send you an investment statement for the default KiwiSaver scheme that you were allocated to
your employer did not supply an investment statement for their chosen KiwiSaver scheme
events outside your control prevented you from delivering your opt-out notice on time.
If you already have a retirement savings scheme
You can still join KiwiSaver if you already save through another superannuation scheme.

You should discuss your options with your financial advisor.

Get financial advice

KiwiSaver is not guaranteed by the government. This means that you invest in a KiwiSaver scheme at your own risk.

Neither your employer nor Inland Revenue can give you financial advice about whether KiwiSaver is the right choice for you.

For help deciding whether you can join, visit the Retirement Commission's Sorted website. Sorted provides free and independent information about money matters, including KiwiSaver.

Alternatively, contact a financial advisor for advice on:

your personal financial circumstances
whether or not KiwiSaver is right for you
how to choose a scheme or investment product
the overall KiwiSaver scheme and its financial concepts.


Role of employers

Your employer deducts your KiwiSaver contributions from your pay, so you don't have to think about it.

Employers' main KiwiSaver responsibilities include:

giving new employees a KiwiSaver information pack when they start, if the employer is satisfied the person should be automatically enrolled
giving us the names, IRD numbers and addresses of all new employees and those who want to join KiwiSaver, using a new form - KiwiSaver enrolment details (KS1) that they send in monthly with their employer's monthly schedule
deducting employees' contributions from their gross pay and forwarding them to us along with their PAYE
ensuring new employees' contributions start from their first pay
refunding any contributions deducted if they haven't been passed on to us when an employee opts out of KiwiSaver
providing investment statements for all employees if the employer has chosen a preferred KiwiSaver scheme.
acting on opt-out and contributions holiday letters
keeping the required KiwiSaver records.
Employer contributions
Employers can also contribute to their employees' KiwiSaver accounts. These contributions can currently count towards your minimum contribution of 4%, and are exempt from specified superannuation contribution withholding tax (SSCWT) up to a cap of whichever is less - your contribution or 4% of your gross pay.

In Budget 2007 the government announced significant enhancements to KiwiSaver, including a proposal that from 1 April 2008:

employers will match employee contributions for KiwiSaver (phased in over four years)
employers will receive a tax credit for up to $20 a week per employee
employer contributions will not count towards your minimum contribution of 4% - transitional rules will apply for those employees who already have employer contributions counting towards their minimum contribution of 4%.
Legislation giving effect to these changes is currently before Parliament. It is expected to be passed later this year, subject to changes at Select Committee stage.



Further information for employers about what KiwiSaver means for them is on the Inland Revenue website.

Employer-chosen schemes


Your employer can choose to have a KiwiSaver scheme for employees who don't choose a scheme of their own. This way, employees who don't choose their own savings scheme are allocated to the employer's chosen provider, instead of a default scheme allocated by Inland Revenue.

An employer can choose a KiwiSaver scheme only if all their new permanent employees are eligible to be members of the scheme.

If an employee ceases to be eligible to be a member of an employer's chosen KiwiSaver scheme, the employer, or the provider as the employer's agent, must notify both the member and Inland Revenue.

"Exempt" employers

All employers will have to offer KiwiSaver in their workplace. However, any employer who already offers a registered superannuation scheme that meets certain criteria may seek an exemption from the requirement to automatically enrol their new employees.

Exempt employers will still have to have KiwiSaver available to any staff who want to join.

Your pay

KiwiSaver is designed to make regular saving easy. If you earn a salary or wages your contributions are deducted from your gross pay.

If you don't earn a salary or wages from which PAYE is deducted when you join KiwiSaver, for example if you're self-employed, you agree with your scheme provider how much you're going to contribute.

For employees

If you're an employee, your KiwiSaver contributions will be deducted at the rate of 4% of your gross pay (that means your total salary, including bonuses, commission, overtime, gratuities or any other kind of remuneration). Or, you can contribute 8%. There are no minimum or maximum income thresholds for deductions.

You can switch between contribution rates by asking your employer to change your rate from 4% to 8%, or 8% to 4%. You cannot do this more often than quarterly, unless your employer agrees.

Unless you're on a contributions holiday, contributions will continue to be deducted while you're an employee. However, if you're out of the workforce for any reason and are no longer being paid by your employer, your contributions will stop automatically unless you make arrangements to keep them going.

If your employer deducts your regular contribution from your pay, but doesn't pass it on, we'll still make the payment to your scheme provider (up to a maximum of 8% of your gross pay) and follow up with your employer.

This guarantee only applies to deductions of up to 8% of your gross salary or wage. Any contributions above 8%, including any extra voluntary contributions you make, are not guaranteed.

Your employer's contributions

Your employer may contribute to your KiwiSaver savings, and they'll tell you if they do and whether there are any special terms and conditions. If certain criteria are met your employer's contribution can currently count towards your KiwiSaver contribution rate of 4% or 8%, or it can be on top of your contribution.

Extra contributions

You can make voluntary lump sum payments whenever you like. Once you've made a lump sum payment you can't withdraw it until your savings mature. You can pay lump sums to us by:

choosing the "Pay tax" option on your internet banking service
paying over the counter at any Westpac branch
sending a cheque to us.
Your scheme provider may also accept lump sum contributions.

In the first three months

All KiwiSaver contributions need to be paid through Inland Revenue from 1 July 2007 to 1 October 2007. We will send your contributions on to your scheme provider three months after we receive the first contribution from your employer. We will pay interest on these contributions.

Scheme providers can only accept KiwiSaver contributions after 1 October 2007.

Contributions holiday - temporary breaks from saving

After you've been contributing to KiwiSaver for 12 months you can apply for a savings break, called a contributions holiday, of between three months and five years. There is no limit to the number of times you can take a contributions holiday. If you take a contributions holiday you can still make lump sum payments.

If you suffer financial hardship within the first 12 months of saving, talk to Inland Revenue. You may be eligible for an early contributions holiday.

Only employees who have KiwiSaver deductions from their salary or wages can take a contributions holiday. Other members, such as self-employed people, can't take contributions holidays and will need to negotiate a savings break with their scheme provider.


Going on holiday

If you take a trip overseas or in New Zealand, but are still paid by a New Zealand employer, your KiwiSaver contributions will continue unless you take a contributions holiday.

Sick leave

If you take paid sick leave your KiwiSaver contributions will continue.

KiwiSaver for self-employed people

The contract with the provider will cover how much and how often you must make contributions. You'll be able to make payments either directly to your KiwiSaver scheme provider or via Inland Revenue for on-payment to the scheme provider. Until October 2007 all contributions must be paid via Inland Revenue.

If you later start earning a salary or wage, contributions will start being deducted.

Special circumstances

NZ Super
KiwiSaver is designed to complement NZ Super, to give people a better standard of living in retirement. Being a KiwiSaver member will not affect your eligibility for NZ Super.

More than one job

If you have more than one job when you join KiwiSaver, you can choose which jobs you'll contribute from. This could be one or more of your jobs.

You'll have to contribute from any new jobs you start, unless you take a contributions holiday. To ensure you have the flexibility to only contribute from the jobs you want to, you can take a contributions holiday after 12 months' membership and apply it to any or all of your jobs, or opt out if this option is available at the time you start the new job.

ACC

KiwiSaver members who receive weekly compensation from ACC will be able to choose whether to have KiwiSaver contributions deducted from their payments.


Paid parental leave

If your employer continues to pay you when you're on parental leave, your KiwiSaver contributions will continue to be deducted from your pay. If you want to stop them you can take a contributions holiday.

If you're not being paid by your employer while you're on parental leave, your contributions will stop automatically but you can keep them going by contacting Inland Revenue. Your contributions will start again when you're back at work.

Beneficiaries

People on an income-tested benefit will not have KiwiSaver contributions deducted from their benefit. If you start receiving a benefit and have no paid employment, your KiwiSaver deductions will stop automatically. However, you can choose to pay contributions directly to your scheme provider or to Inland Revenue.

If you get paid by an employer while receiving a benefit, KiwiSaver contributions will be deducted from your pay. If you want to stop them you can request a contributions holiday.

Bankruptcy

If you are declared bankrupt, your KiwiSaver contributions may be recovered by the Official Assignee in certain circumstances.

Benefits and incentives

Starting incentive

To get your savings off to a good start, the government will kick-start your KiwiSaver account with a tax-free contribution of $1,000. This kick-start will be paid to your scheme provider. This is a unique benefit of KiwiSaver and is not available to people who choose to save for their retirement through other schemes.

Member tax credit

If you're 18 or over, each year the government will pay into your account a member tax credit matching the contributions you've made that year, up to a maximum of $1,042.86. This is the equivalent of up to $20 a week. This will be paid until you're eligible to access your savings - when you're eligible for NZ Super (currently 65) or after five years' membership, whichever is later. To qualify for the member tax credit, your principal place of residence must be in New Zealand (although there are some exceptions).

Fee subsidy


The government will pay a subsidy of $20 into your KiwiSaver account twice a year to subsidise the fees charged by your scheme provider. The subsidy will be paid into your account until you qualify for NZ Super (currently 65) or after five years' membership, whichever is later.

Buying your first home

If you're intending to buy your first home, KiwiSaver can be a way of getting into the habit of regular saving.

After contributing to KiwiSaver for three years you may be able to withdraw all or part of your savings (excluding the $1,000 government contribution and member tax credit) to put towards buying your first home (not an investment property).

First home deposit subsidy


If you've been contributing around 4% of your income to KiwiSaver or to an approved alternative superannuation scheme, you may also be entitled to a first home deposit subsidy from the government through Housing New Zealand Corporation. The subsidy is $1,000 per year of membership in a scheme, up to a maximum of $5,000 for five years for each member.

The eligibility criteria are set by Housing New Zealand and include household income and regional house price caps. The first home deposit subsidy is administered by Housing New Zealand and will be available from 2010. To find out more visit the Housing New Zealand website.

Use KiwiSaver to help pay your mortgage

After you've been a KiwiSaver member for 12 months, you may be able to split your contributions - up to half towards repaying the mortgage on your home and the rest to your KiwiSaver savings. This is called "mortgage diversion".

Mortgage diversion may be available for new and existing mortgages, but can only be used towards the mortgage on your main home (not an investment property or holiday home). Once your mortgage is paid off, all contributions would go to your KiwiSaver account.

Your member tax credit and any contributions your employer makes cannot be diverted to your mortgage. Contributions you divert to your mortgage do not qualify for the member tax credit.

Not all KiwiSaver scheme providers and mortgage providers will offer this, and some types of mortgages will be excluded (for example, revolving credit mortgages) so if this option is important to you, check it out before you join up.


For KiwiSaver members

KiwiSaver schemes

With KiwiSaver you can choose a savings scheme to suit you. There will be a range of scheme providers and several investment types, from conservative risk to growth funds. You can change KiwiSaver schemes but can only belong to one KiwiSaver scheme at any time.

KiwiSaver is not guaranteed by the government. This means that you invest in a KiwiSaver scheme at your own risk.

A list of providers with fully-registered KiwiSaver schemes is now available. The official register of KiwiSaver schemes is held by the Government Actuary.

Allocating you to a scheme

If you're being automatically enrolled, or if you're an existing employee who has opted in through your employer, you'll be allocated to your employer's chosen KiwiSaver scheme, if they have one, or to a default KiwiSaver scheme. If you're allocated to a default scheme it will be a "conservative fund". Six financial institutions have been appointed by the government to be default scheme providers. This process was managed by the Ministry of Economic Development. The default providers are:

AMP Services (NZ) Limited
ASB Group Investments Limited
ING (NZ) Limited
Mercer Human Resource Consulting Limited
National Mutual Corporate Superannuation Services Limited (trading as AXA New Zealand)
TOWER Employee Benefits Limited.
When you're allocated to a scheme, you'll receive a letter from us advising which scheme it is, and a copy of their investment statement. If your employer has a chosen scheme, you'll receive a copy of their investment statement from your employer.

Please make sure that you read the investment statement. This is an important document that sets out the specific rules, fees, terms and conditions of the scheme and explains how your money will be invested.

Your contributions will be held by us for the first three months to give you time to get financial advice and choose your own scheme if you want to. After three months, if you haven't opted out or chosen your own scheme, you'll be enrolled in the scheme you were allocated to. Your contributions will be paid, with interest, to the scheme. The $1,000 government kick-start and first fee subsidy will be paid into your scheme account at the same time.

Choosing a scheme

You can choose your own KiwiSaver scheme at any time by applying to the provider of the scheme you want to belong to. If you choose your own scheme within the first three months of starting your new job, this will override the allocation process. If you want to change your scheme, you must apply to the provider of the new scheme you want to join. You can only belong to one KiwiSaver scheme at any time.

Accessing savings

Your contributions are invested for you. Your scheme provider's investment statement will explain how they will invest your money and what returns you can expect.

You can withdraw your savings (including the government kick-start and member tax credits) as a lump sum when you qualify for NZ Super (currently 65) or after five years' membership, whichever is later.

You may be able to withdraw your savings earlier:

after three years to buy your first home (excluding the government kick-start and member tax credit)
if you experience significant financial hardship (excluding the government kick-start and member tax credit)
if you suffer serious illness (excluding the government kick-start but including the member tax credit)
if you emigrate permanently (including the government kick-start but excluding the member tax credit which is paid back to the government).
In most cases you apply to your KiwiSaver scheme provider if you want to withdraw your savings. If you experience significant financial hardship or serious illness within the first three months of contributing, you'll need to apply to us.

On your death, your savings will be paid to your estate.