Barbara Buckett and Associates Barristors and Solicitors

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march 2007

kiwiSaver – what it means for you

what is kiwiSaver?

KiwiSaver is a voluntary work-based retirement savings scheme. The scheme commences on 1 July 2007.

how will kiwiSaver work?

KiwiSaver contributions will be deducted from the earnings of contributors and forwarded to IRD. IRD will then transfer each person's contribution to their scheme provider for investment in their savings scheme.

There is a range of membership benefits to encourage people to join KiwiSaver, including a $1,000 tax-free kick-start and subsidised scheme fees. Some people may also be eligible for help with the deposit on their first home.

who can become a kiwiSaver?

All New Zealand residents and people entitled to live here permanently, aged up to 65 can become a KiwSaver member.

how will people join kiwiSaver?

Although KiwiSaver is a voluntary scheme employers will have to automatically enrol all new employees (subject to the exemptions discussed later) as a KiwiSaver member.

An employee won't be automatically enrolled if they:

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 for relocation with the same employer)
receive payments subject to withholding tax
are not a New Zealand resident
don't normally live here (except government employees working overseas)
are not required to have tax deductions made from their salary or wages under the PAYE rules.

All existing employees can join KiwiSaver by contacting a KiwiSaver scheme provider directly. They will then need to ask their employer to start deductions at their chosen contribution rate. An employer will be obliged to make this deduction.

opting out

New employees who have been automatically enrolled as a KiwSaver member will have eight weeks to decide whether to continue their membership. A form for this will be included in a pack that employers will be required to provide new employees or this can be done online.

exemption from automatic enrolment requirements

An employer can apply to the Government Actuary for an exemption from the automatic enrolment requirements of KiwiSaver. To qualify as an exempt employer and employer must operate a retirement savings scheme which is:

a registered superannuation scheme
portable (members can transfer their balance to the scheme when they join and to other schemes when they leave your employment)
open to all new permanent (including part-time) employees
has a total contribution rate (employer plus employee) of at least 4% of the employee's gross base salary or wages
has employer contributions that count towards the employee's minimum contribution of 4% vesting fully in the employee on or within five years of the employee becoming a member of the scheme.

Employers may also be eligible for an exemption if they provide access to a defined benefit scheme which meets the first 3 bullet points above, and accrues benefits at a minimum rate of 4% of the employee's before-tax gross base salary or wages.

Employees enrolled in existing work-based schemes that exempt the employer from the automatic enrolment provisions will still be able to apply for a first home deposit subsidy if they meet the eligibility criteria. They won't, however, get the government-funded $1,000 savings kick-start, or subsidised scheme fees.

kiwiSaver schemes

KiwiSaver members will be able to choose their own savings scheme product that is provided by either a ‘default provider’ or ‘other qualifying provider’. Companies such as AXA, Tower and AMP have been awarded default provider status.

employer responsibilities

From 1 July 2007 the Act requires employers to be responsible for:

distributing a KiwiSaver information pack to new employees and employees who opt in *
enrolling new employees by giving Inland Revenue their name, IRD number and address *
providing Inland Revenue with the name, IRD number and address of employees who opt in through their employer *
deducting employees' contributions and forwarding them to Inland Revenue along with PAYE
accepting opt-out notices from employees, notifying Inland Revenue and refunding any contributions not already passed to Inland Revenue *
giving employees investment statements from the KiwiSaver scheme provider elected by an employer – employers may elect to specify an initial KiwiSaver scheme if an employee does not choose one
recording which employees are KiwiSaver members, their contribution rate and any notification of contributions holidays or opt-outs
ensuring PAYE records show the KiwiSaver amounts deducted and passed on to IRD.

[* does not apply if exempt from the automatic enrolment requirements]

Employers will need to deduct employees' KiwiSaver contributions from their before-tax pay and forward them to Inland Revenue through the PAYE system. Employers will also need to ensure that new employees' KiwiSaver contributions start from their first pay.

savings amount

The level of savings for KiwiSaver members will be 4% of before-tax salary or wages (that means total salary, including bonuses, commission, extra salary and overtime). An employee can elect to contribute 8%.

employee tax credit

People who save through KiwiSaver will benefit from a tax credit matching contributions at 100 per cent, up to $20 per week (about $1,040 per year) from 1 July 2007. An annual fee subsidy will also apply, which has been set at $40 per member, per annum.

employer contributions

Where an employee opts to stay in KiwSaver, or to join it and make contributions, a compulsory employer matching contribution will be phased in over four years starting at one per cent from 1 April 2008. This will match the minimum employee contribution of four per cent by April 2011.

Employer contributions will be tax-free (exempt from specified superannuation contribution withholding tax), up to a cap of the employee’s contribution or 4% of their before-tax pay, with the lowest rate applying. This is not a tax benefit for the employer – it simply means the employee gets the full amount contributed by their employer up to the cap allowed.

Only employer contributions to KiwiSaver schemes will automatically qualify for the SSCWT exemption. Employer contributions, including salary sacrificed by employees for savings that are made to non-KiwiSaver schemes, won't qualify unless the scheme meets prescribed criteria, which include that contributions are locked-in in the same way KiwiSaver contributions are.

To partly recognise the cost of compulsory employer contributions a tax credit capped at $20 per week per worker (about $1,040 per worker per year) will apply to employers. This tax credit will be paid to employers through the PAYE system by offsetting against the employer's contribution and other PAYE liabilities.

Employer contributions to all non-KiwiSaver schemes will count towards compulsory contributions for:

employers who provide access to a superannuation scheme as of 17 May 2007
existing scheme members (i.e. members prior to 1 April 2008), or where the employment agreement of existing employees (i.e. employees prior to 1 April 2008) provides access to the scheme
existing employment (i.e. employment as at 1 April 2008).

more information

This information is based on material published on the IRD website. For more information visit the IRD site.

More information can also be obtained from the following IRD publications:

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Disclaimer: This article is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication. Please refer to our Legal Notices.