KiwiSaver Design

Shortcuts to information about:

• Membership
• Contributions
• Providers
• Subsidies for KiwiSaver Members
• Subsidies for Employers
• Withdrawals
• Existing Superannuation Schemes

Membership    

• Membership must be offered by all employers. 
• Most new employees aged 18 to 65 are automatically enrolled when they start a new job with any employer other than an "exempt employer".
• Those employed for four weeks or less are excluded from automatic enrolment.   Some other exceptions also apply.
• Most other employees can opt in, including some employees working overseas and employees of an "exempt employer".
• Information on the scheme is provided by Inland Revenue.
• Employees can opt out during weeks three to eight (inclusive) of employment via their employer or Inland Revenue.   In some situations a late opt-out period may be available.

Contributions   

• Member Contributions start from the first pay day after commencement of employment, if the employee has not opted out prior to that first pay date.
• Member Contributions are automatically deducted from salary/wages and sent to Inland Revenue. 
• Default member contribution rate is 4% of employees gross salary or wages, unless an optional higher rate of 8% is selected by the employee.  Base salary or wages is used to calculate the contribution if made to a Complying Fund.
• Member Contribution holidays are allowed by applying to the Inland Revenue after an individual has been making contributions for at least 12 months.   Contribution holidays within 12 months are also possible in cases of financial hardship.  A contribution holiday will be for a minimum period of three months (unless the employer agrees to a shorter period) and can be for up to five years at a time (although contribution holidays for financial hardship have a three month period unless Inland Revenue agrees otherwise).
• Members can divert up to half of their member contributions (but not tax credit contributions) to repay the mortgage on their home, if their mortgagee and scheme provider agree.
• Inland Revenue will forward contributions to the scheme provider (although in some cases they may be held by Inland Revenue for a period first) together with any interest earned whilst the contributions were held by Inland Revenue.
• Employer contributions can count towards the 4% minimum contribution in some circumstances.
• Employer contributions up to a maximum of the lesser of the employee's contribution and 4% of the employee's gross salary or wages will be exempt from SSCWT.  
• Employer matching contributions to non-complying funds will count towards the compulsory employer matching contributions.   However, employers will not be eligible for the tax credit on these contributions.

Providers     

• Employers can choose a preferred scheme provider.
• Employees can choose their own scheme provider.
• The employer's choice can be overridden by the employee's choice.
• If no choice of scheme is made, employees will be allocated by Inland Revenue to a default provider's scheme on a random basis.   Six default providers have been appointed via a tender process.
• Providers need to register their schemes as KiwiSaver schemes and need to meet certain requirements.
• Employees can choose to transfer their savings, including savings that have come from employer contributions, from one KiwiSaver scheme to another, regardless of any employer choice of preferred provider.
• Providers will be required to notify the Government Actuary when compulsory matching employer contributions to complying superannuation funds have not been paid in full.
• From 1 April 2008, providers will be required to disclose their approach to responsible investment. 

Subsidies for KiwiSaver Members 

• The Government will make a $1,000 initial contribution to the relevant KiwiSaver scheme for the credit of each new member.

• The Government will provide a contribution subsidy towards the fees paid by members of KiwiSaver.   This has been set by regulation at $40 per annum, payable at the rate of $20 per member every 6 months.
• The Government will also provide housing deposit assistance for a member's first home purchase.   This is available after three years' membership, at $1,000 per year of contributory membership, up to a maximum of $5,000 after five years.   There are limits around household income and the purchase price of the first home.
• The $1,000 Government contribution and fee subsidy are not subject to income or withholding tax or gift duty.
• Members making contributions to a complying fund section within a registered superannuation scheme will be eligible for all the KiwiSaver benefits other than the $1,000 KiwiSaver kick start and fee subsidy.
• From 1 July 2007, all member contributions to KiwiSaver Schemes (and complying superannuation funds) will be matched by a tax credit of up to $1042.86 per annum (equivalent to $20 per week) that will be paid directly into their KiwiSaver account (or complying superannuation fund).   This includes contributions made by the self employed or not employed.

From 1 April 2008, all employees contributing to KiwiSaver (and complying superannuation funds) will also be entitled to a matching employer contribution subject to any offsets for employer contributions to other superannuation arrangements that may be available.  The compulsory contribution is as follows:

Subsidies for Employers 

• All employer contributions to an employee’s KiwiSaver scheme (or complying superannuation fund) will be eligible for a matching employer tax credit of up to $20 per week per employee from 1 April 2008.

• Employers making contributions to complying superannuation funds will also be eligible for the employer tax credits.
• The employer contributions will be exempt from SSCWT subject to a cap – the lesser of the employee’s total contribution or 4 per cent of the employee’s total taxable earnings.
• Employer tax credits will be paid to employers through the PAYE system by off setting the credit against the employer’s contribution and other PAYE liabilities to minimise cashflow impacts and compliance costs.

Withdrawals   

• Benefits are locked in until New Zealand Superannuation age (currently age 65), or after a minimum five years of membership, if later.

• Earlier withdrawals are permissible in cases of significant financial hardship, permanent emigration, serious illness, death, or for a first home deposit.
• You will not be able to withdraw your member tax credit if you permanently emigrate, suffer serious illness or wish to make a deposit on your first home.   In addition, the member tax credit will not be able to be withdrawn under mortgage diversion.

Existing Superannuation Schemes 

• An existing scheme can continue as now, but most employers (other than "exempt employers") will be required to enroll all new employees automatically into KiwiSaver, and all employers will have to allow permanent employees to opt in to KiwiSaver.
• An existing scheme can also convert to a "KiwiSaver" scheme (by meeting all KiwiSaver scheme rules) with the consent of all members and on application to the Government Actuary.    Members will then be KiwiSaver members and will be subject to the same lock-in requirements and will be entitled to the taxpayer-provided subsidies.    This is unlikely to happen.   
• An existing scheme can establish a KiwiSaver scheme section within the existing scheme called a "bolt on".   Members then choose whether to join the KiwiSaver section or not, with any contributions or transfers to that section subject to the lock-in requirements and entitled to the Government subsidies.   Bolt on KiwiSaver schemes are treated as separate legal entities to the existing scheme for most purposes.
• An employer making a registered superannuation scheme available to its employees can apply to be exempt from the automatic enrolment requirements if the scheme meets certain criteria (such an employer is called an "exempt employer").    That is; the scheme has a minimum employee contribution rate combined with a maximum employer contribution that is at least 4% of basic earnings; any employer contributions included within the 4% calculation must vest within five years of the employee becoming a member of the scheme; the scheme is portable and is open to all permanent, including part-time, employees.    Employees of an "exempt employer" will still be able to join a KiwiSaver scheme by opting in.
• The $1,000 subsidy is payable for members if an existing scheme becomes a KiwiSaver scheme.    Members continuing to contribute to an exempt employer's scheme for at least three years after 1 July 2007 will be eligible for first home deposit assistance as the rules are currently stated, as will contributors to KiwiSaver schemes.
• An exemption from SSCWT will also be available for existing schemes that have KiwiSaver-like characteristics (most significantly, similar lock-in requirements and portability).  These are referred to as “Complying Superannuation Funds”.   A complying superannuation fund is a section within a registered superannuation scheme that has been approved by the Government Actuary as having met certain criteria similar to KiwiSaver.  This ensures that the employer tax credit applies in respect of contributions towards an employee’s long–term retirement savings.
• Members of an existing scheme can continue in that scheme and also enroll in a KiwiSaver scheme, provided they meet the 4% minimum contribution threshold for KiwiSaver, irrespective of any contributions to their existing scheme, and thereby receive the $1,000 subsidy.
• Budget 2007 recognised that non-KiwiSaver employer-sponsored schemes have been in place for some time that incorporate desirable characteristics of KiwiSaver schemes.   Arrangements to accommodate these employers and schemes have been made, such as expanding the eligibility of tax credits and allowing employer contributions to count towards employers’ compulsory requirements, and will apply in specific circumstances.