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.
KiwiSaver focuses on encouraging saving through the workplace. Saving through the workplace allows for deductions at source and provides a way to reach a broad section of the population.
Under the proposal:
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:
How can they join KiwiSaver? |
How do they choose a scheme? |
At what rate can they contribute? |
|
Employees (aged between 18-65) starting a new job after KiwiSaver is implemented |
They will be automatically enrolled, with the right to opt out
|
They can choose their own scheme by notifying a scheme provider directly Their employer may choose a preferred scheme, if no choice is made by the employee Inland Revenue will allocate a default scheme if no choice is made |
4% (default) or 8% |
Any employees (aged between 18-65) |
They can choose to join by:
|
Inland Revenue will allocate a default scheme if no choice is made Their employer may choose a preferred scheme, if no choice is made by the employee They can choose their own scheme by notifying a scheme provider directly |
4% (default) or 8% |
Individuals (aged between 18-65) who are not employees |
They can choose to join by contracting directly with a scheme provider or Inland Revenue |
Choose their own scheme by contracting directly with the scheme provider |
A rate agreed with the scheme provider |
Individuals under 18 years of age (including employees and non-employees) |
They can choose to join by contracting directly with a scheme provider or Inland Revenue |
Choose their own scheme by contracting directly with the scheme provider |
If an employee: 4% or 8% If not an employee: a rate agreed with the scheme provider |
The 4% or 8% will be based on an employee's gross salary or wages before tax. This includes salary or wages and other employment-related taxable allowances such as sums receivable by way of bonus, commission, extra salary, gratuity, overtime or other remuneration of any kind.
Annual gross salary/wages before tax |
4% weekly contribution |
8% weekly contribution |
$10,000 |
$8 |
$15 |
$30,000 |
$23 |
$46 |
$50,000 |
$38 |
$77 |
$80,000 |
$62 |
$123 |
$100,000 |
$77 |
$154 |
All New Zealand residents below the age of eligibility for New Zealand Superannuation will be able to join KiwiSaver but participation will not be compulsory because it may not suit everyone including:
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.
Employees starting a new job on or after the implementation date will be automatically enrolled in KiwiSaver, with the ability to opt out.
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.
In making financial decisions, many people find too much choice overwhelming. At the same time, individual choice is important in encouraging individuals to take an active interest in their financial decisions.
All KiwiSaver members will be able to:
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.
Employers will have responsibility for:
KiwiSaver is anticipated to start on 1 April 2007.
KiwiSaver schemes will be governed by trust deeds and regulated similarly to registered superannuation schemes. All KiwiSaver schemes will need to be registered by the Government Actuary.
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.
After 12 months in the scheme, KiwiSaver members will be free to stop and start contributing as they wish by applying for a contributions holiday for up to five years at a time. At the end of the five years, contributions will resume unless a further option to cease them is exercised. Inland Revenue will oversee this process. The minimum period for a contributions holiday will be three months unless the employee’s employer agrees to a shorter period. This minimum period is to reduce compliance costs for employers in having to stop and start contribution deductions frequently.
A member will not be able to take a contributions holiday during the first 12 month period. This is to promote long-terms savings without deterring participation or penalising people for an unexpected change in their circumstances. During these 12 months, these employees may be able to access their funds in the event of serious financial hardship, excluding the $1000 government contribution.
The government will make a kick start contribution of $1000 to individuals’ KiwiSaver member accounts when contributions are first paid by Inland Revenue to the scheme provider. This up-front contribution will not be able to be withdrawn to purchase a first home or for financial hardship.
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.
KiwiSaver will provide:
KiwiSaver has been designed to minimise compliance costs for employers where possible, by building off existing processes.
Employers will be required to:
Employers will be able to choose whether or not to:
In addition, an employers’ current superannuation scheme may choose to convert to a KiwiSaver scheme under their existing trust deed.
Yes. All employees should have the opportunity of joining KiwiSaver.
An employer with an existing registered superannuation scheme will be able to apply to be exempt from the automatic enrolment requirements if that scheme meets the following criteria:
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.
No. Scheme assets will not be able to be used as security for borrowing.
No. Employers will be provided with KiwiSaver information packs to give their employees that outlines how the scheme works, and provides details of how employees can receive further advice, including financial advice.
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.
An open competitive tender process will be run to select a limited number of default KiwiSaver scheme providers. The tender process is expected to commence in mid-March 2006.
Upon reaching the age of eligibility for New Zealand Superannuation all members will have the option of withdrawing the funds as a lump sum (although providers may choose to also offer other options, such as an annuity).
Yes. Inland Revenue will pay interest on contributions held. The rate of interest will be the Commissioner’s paying rate set for the use of money interest rules. This rate is set at the 90-day bill rate less 100 basis points.
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