The KiwiSaver Scheme
We consider KiwiSaver to be the most significant savings scheme in decades, and it will be the mainstay of many Kiwis retirement plans in the future.
Budget 2011 changes:
The Government are halving the up to $20 per week ($1043 pa) matching government contribution tax credit of $1 to 50c or up to $521 for the year ending 30 June 2012 and beyond.
From 1 April 2013 the minimum employee and employer contribution will rise from 2% to 3%.
From 1 April 2012 all employer contributions will be subject to Employer Superannuation Contribution Tax.
How does KiwiSaver work?
Any Kiwi up the age of 65 can join a KiwiSaver Scheme and get some of the benefits..
It is designed mainly for employees aged between 18 and 65, who can contribute 2% (3%) 4% or 8% of their gross salary or wages into a KiwiSaver scheme. They are known as KiwiSaver 'members'.
Savings are generally 'locked in' until the date a member reaches New Zealand Superannuation qualification age (currently 65 years) or the date on which they have been a member of a KiwiSaver scheme for a minimum of five years, whichever is later. In certain circumstances, a member may make a withdrawal for the purpose of purchasing a first home and may be able to divert some of their employee contributions to repay their mortgage, provided the scheme is offering an appropriate mortgage diversion facility and the terms of that facility permit.
After an initial contribution period of 12 months, members can take a 'contributions holiday', which means they suspend any further contributions for a period of up to five years (conditions apply). On the grounds of financial hardship, a contribution holiday of three months (unless the Inland Revenue agrees to a longer period) may be granted at any time after the member's first contribution is received by the Inland Revenue. Contributions holidays can be renewed.
Withdrawals before the age of 65 may be allowed if:
There are specific criteria for these withdrawals and detailed information must be provided for the withdrawals to be permitted.
Members' contributions will be automatically deducted from their salary or wages by their employer. The KiwiSaver scheme may also automatically follow the member from one job to the next, meaning they only need the one KiwiSaver scheme account over their entire working life.
From 1 July 2007, enrolment was automatic for employees starting a new job, and voluntary for existing employees. However, new employees can opt out up to eight weeks after starting their new job and any deductions made during this time will be refunded.
Is participation compulsory?
No, a person can choose whether they are part of a KiwiSaver scheme or not. KiwiSaver is open to all New Zealanders up the age 65.
Anyone over 18 starting a job is automatically enrolled in a KiwiSaver scheme. However, they can 'opt out' of KiwiSaver up to eight weeks after starting their new job, and any deductions made during this time will be refunded.
A person can also elect to 'opt in' to a KiwiSaver scheme regardless of their employment status. To do this, they need to either:
What choices do savers have?
Choice is important in encouraging individuals to take an active interest in their financial decisions.
KiwiSaver members are able to:
Information has been provided to help people make decisions about KiwiSaver to Employers and Employees by Inland Revenue. It is also available on the sites www.retire.co.nz or www.kiwisaver.govt.nz and www.sorted.org.nz
Inland Revenue will randomly allocate employees to a default provider, unless their employer has nominated a preferred scheme of which their employees will become members, or they choose to become a member of another scheme.
What is a default provider?
New members of KiwiSaver who do not select a preferred provider, and who are not allocated to a scheme by their employer, will be allocated to a default provider. The six default providers have been selected following an open and competitive tender process carried out by the Ministry of Economic Development last year.
The method of allocating a member to a default provider is expected to be by rotation around the six providers.
See www.retire.co.nz for more details.
People who saved through KiwiSaver benefited from a tax credit that matched their contribution, up to a maximum of $20 per week ($1,042.86 per year) from 1 July 2007 till 2011 when the Government have indicated this rate changed to $10 per week.
For those who are employees, compulsory matching employer contributions was also phased in from 1 April 2008 and set as a maximum of 2% from 1 April 2009 and 3% from 1 April 2013.
These additional contributions will increase the funds available to members on retirement, helping to improve the adequacy of retirement incomes.
See www.retire.co.nz for more details.
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 individuals income and house price caps. See www.retire.co.nz for more details.
The contribution rates from gross salary will be either 2, 4 per cent or 8 per cent. The contribution rate will be 2 per cent unless the higher rate has been elected by the employee.
If you are self employed or not employed
Choice of Scheme
Impact on State sector employees
Like private sector employees, employees in the State sector will be able to opt into KiwiSaver and receive KiwiSaver benefits, such as the member tax credit.
In some circumstances, contributions that State sector employers make to existing superannuation schemes e.g., the State Sector Retirement Savings Scheme (SSRSS), will count towards the required compulsory employer contribution. In these situations, employees will not be eligible for KiwiSaver compulsory employer contributions as well.
How Can We Help
Costello Financial Services Ltd, have been providing Investment advice to Aucklanders since 1970. We are Members of the Institute of Financial Advisers. Our advisers have studied the KiwiSaver schemes and options and are available to provide appropriate advice to you. We have selected and can recommend a range of KiwiSaver providers which should suit most investors.
If you would like material mailed or to talk with a Financial Adviser just email us here or call Auckland 09 4808308. We can send you appropriate investment statements , application forms and other material from a range of providers to assist your KiwiSaver decisions. Note this is a generic class service. For individual advice specific to your circumstances we recommend that you contact an Authorised Financial Adviser (AFA). Members of CFS are qualified as AFA.
See our Disclosure Statement
Disclosure Statements relating to the financial advisers associated with this document are available on request and free of charge.