KiwiSaver

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The KiwiSaver scheme logo.

The KiwiSaver scheme is a New Zealand voluntary long-term savings scheme which came into operation from Monday, 2 July 2007. The main purpose of the KiwiSaver fund is for retirement savings.

A policy initiative of the Fifth Labour Government of New Zealand, it is aimed at improving New Zealand's low average rate of saving. It is governed by various Acts of Parliament including the KiwiSaver Act 2006, passed in September 2006.

Basic operation[edit]

Employee participants can choose to contribute 3%,[1] 4% or 8% of their gross pay, and can switch rates three months after setting a rate (unless employers agree to a shorter time frame). The self-employed and unemployed can choose how much they want to contribute.[2] While most KiwiSaver schemes have minimum contribution amounts for people in this category, several schemes allow any level of contributions.[3] All New Zealanders aged 18–65 starting a new job, with some exceptions, are automatically enrolled in KiwiSaver, but can choose to opt out from day 14 to day 56 of their employment.[4]

Participants choose to put their savings in one of several "approved savings schemes" with varying degrees of expected risk and return. They can only belong to one scheme at a time, but can change schemes at any time. If they do not choose a scheme, they will be assigned either to the employer's default fund or to a government-selected default fund.

When a person joins they receive a $1,000 tax-free "kick start" to their savings account from the government. They also receive a "tax credit" (a payment from IRD) of up to $1,042.86 p.a., and potentially a first-home deposit subsidy. From 1 July 2011 the tax credit is reduced to a maximum of $521.43 for a member contribution of at least $1042.86. (http://www.kiwisaver.govt.nz/new/benefits/mtc/)

KiwiSaver contributions can only be accessed in the following circumstances:

  • reaching retirement age or after five years as a member of KiwiSaver (if over the age of 60)
  • a one-off withdrawal after three years to help in the purchase of the first home
  • serious illness
  • significant financial hardship
  • absence from New Zealand for 12 months

From 1 April 2008 employers have to make matching contributions starting at a minimum of 1% of the employee's gross salary and increasing by 1% each year. Under the original scheme, the employer's contribution peaked at 4% on 1 April 2011. The Fifth National Government's Taxation (Urgent Measures and Annual Rates Bill), passed under urgency on 11 November 2008, reduced the employer contribution to 2% and also allowed employees to drop their contribution to the same level.[5]

Mortgage diversion[edit]

Some provider funds offer a mortgage diversion scheme where some of the employee contributions can be used to make mortgage repayments instead of going towards Kiwisaver, after a person has been signed up for 12 months. This is only allowed for repayments on the main home, and not for other properties such as investment or holiday homes. Employer contributions will not be able to be used for the mortgage.

This option was abolished by the National Government that came into power in 2008, though employees who used this option prior to June 2009 can continue to use it as long as their provider offers it.

Contribution holiday[edit]

Persons on the scheme can take contribution holidays after 12 months for any period from 3 months to 5 years without any limits on future contribution holidays.

Children[edit]

Persons under 18 years of age may join KiwiSaver if the provider allows their enrolment. If not employed, the child has to agree to a level of contributions with the provider. As soon as the child is employed they must contribute and can never opt out.[6] Children are not entitled to the tax credits.[7]

Withdrawing funds[edit]

As the main purpose of the KiwiSaver fund is for retirement savings, money can be withdrawn from the fund at the age at which the person is eligible for government superannuation, currently 65, or after five years, whichever is longer.

However money can be withdrawn before retirement in a number of circumstances which are outlined in Schedule 1 (KiwiSaver scheme rules), of the KiwiSaver Act 2006.

  • After three years contributions can be withdrawn to buy the first home. This excludes the government kickstart of $1000 and the tax credits.
  • In the event of significant financial hardship, excluding the government $1000 kickstart and tax credits.
  • In the event of serious illness.
  • If a person permanently emigrates from New Zealand. This excludes the government tax credit.
  • Divorce or the end of a de facto marriage longer than 3 years (less if there are children). A person may make a claim on their ex-partner's KiwiSaver account. (Rule 7)
  • Bankruptcy. Creditors can go after bankrupts' KiwiSaver savings. (Rule 7)
  • Death. KiwiSaver savings are paid into the deceased person's estate.

Political issues[edit]

The KiwiSaver scheme was associated with one of the promises on Helen Clark's controversial 2005 pledge card. However John Key, leader of the National Party, has stated that "there won't be radical changes...there will be some modest changes to KiwiSaver".[8] KiwiSaver therefore has broad political support, being supported by both the National and Labour parties, one of which is certain to form the next government of New Zealand. National has since capped employer contributions at 2% and reduced compulsory employee contributions to 2%, with effect from 1 April 2009.[9] Mortgage diversion is no longer available.

Additionally, fee subsidy for those people who become members after 1 April 2009, has been removed and for those people who joined before 1 April 2009 only 1 or 2 years fee subsidy will be paid (depending upon the date the member joined).

An Otago Daily Times opinion article[10] suggested a number of consumer-oriented reforms. He said that Kiwisaver fund managers should reveal the exact investments they are making, rather than broad categories and percentages. American mutual funds reveal the top 10 investments as a matter of transparency. In the same article, the author wrote that one should be able to attach a Kiwisaver account to a discount broker (e.g. Ameritrade, E-Trade, or the like) and choose a large number of investment options, including shares, exchange-traded funds, mutual funds, bonds, and derivatives. Americans and Australians have the ability to make such investment choices in their retirement accounts, he claimed.

On 16 July 2009, the governments of New Zealand and Australia announced plans[11] to allow funds in KiwiSaver and Australian superannuation to be transferred between the two schemes. This would allow New Zealanders who have worked in Australia to repatriate their superannuation money to New Zealand, and likewise for Australians who have worked in New Zealand (although the latter group can claim funds after their absence for a year, under the twelve month rule.)

As of September 2012, the enabling legislation for this scheme had not yet passed Australian parliament.[12]

In 2013 the Labour Party said it would like to make the KiwiSaver scheme universal, in the face of the rising cost of superannuation,[13] while financial organisations called for raising the minimum contributions to 7 percent.[14]

Take-up[edit]

It was announced on 30 August 2007 that nearly 130,000 New Zealanders had signed up for the scheme.[15][16]

In October 2007, after 3 months of operation, 200,000 people had signed up, leading Revenue Minister Peter Dunne to say that

If take-up continues at this rate it might be easier to make the scheme compulsory, thereby removing the employer compliance costs associated with people opting out.

However he said that these were his personal views and not those of the government.[17]

On 6 December 2007, 5 months after the start of KiwiSaver, it was announced that 316,000 people had signed up. Over half were under 45, nearly 20% were under 25, and 33,000 were under 20.[18] By 31 May 2008 uptake had more than doubled to 673,000, with more than $900 million having been paid into KiwiSaver schemes.[19]

At 13 September 2008, the number of KiwiSavers stood at 800,213.[20]

By late March 2009, KiwiSaver numbers had hit 1 million. At 31 March the total number enrolled including opt outs was 1,000,283 surpassing all expectations.[21]

In January 2010, it was reported that 1.3 million have joined Kiwisaver.[22]

By April 2010, 1,401,005 joined Kiwisaver and payments of some $2.3 billion in this financial year ending June, 2010.[23]

By November 2011, Kiwisaver numbers stood at 1.6 million (1,590,887) and rising by 25,000 members per month. For the financial year ending June 2011 contributions totalled $1.6 billion.[24]

By May 2012, nearly two million people (1,931,557) had joined Kiwisaver.[25] According to Morningstar, the total value of funds under management at 31 March 2012 was NZ$11.26 billion. This was an increase of NZ$3.156 billion over a year earlier.[26]

Maximising returns[edit]

There are several strategies that can be employed to maximise returns from the KiwiSaver scheme. These strategies depend on individual circumstances.

  • If their provider allows, those with high-interest mortgages can use part of their KiwiSaver savings to pay back their mortgages (Withdrawn and only available to those signed up to mortgage diversion before 1 June 2009).
  • Taking a contribution holiday to avoid paying 2% of one's salary, but continuing to pay $10 a week to get the matching government tax credit.
  • Business owners may find it advantageous to pay themselves (and family members) a salary in order to get $520 worth of tax credits.[27]

See also[edit]

References[edit]

  1. ^ KiwiSaver changes in the 2014 tax year
  2. ^ Self-employed - your guide to KiwiSaver KS12. Inland Revenue Department. Retrieved 31 May 2012.
  3. ^ http://www.kiwisaver.govt.nz/already/contributions/you/
  4. ^ [1] KiwiSaver – Change or stop contributions
  5. ^ Chaplin, David (12 December 2008). "KiwiSaver-lite gets the green light". The New Zealand Herald. 
  6. ^ [2][dead link]
  7. ^ The Dominion Post: local, national & world news from Wellington's daily newspaper. Dominion.co.nz (18 September 2007). Retrieved on 19 August 2011.
  8. ^ "Key signals 'modest changes' to KiwiSaver". National Business Review. NZPA. 9 July 2008. Retrieved 13 October 2011. 
  9. ^ Bill English, Changes make KiwiSaver more affordable for all, 9 December 2008.
  10. ^ andrewudstraw (22 September 2009). "Kiwisaver is opaque and rigid, and needs reform". Otago Daily Times. Retrieved 13 October 2011. 
  11. ^ "Ministers Take Single Market Forward, Sign Up To Trans-Tasman Retirement Savings Portability". Australian Treasury. Retrieved 2011-12-23. 
  12. ^ "Trans-Tasman retirement savings portability". Australian Taxation Office. Retrieved 2011-12-23. 
  13. ^ Labour backs universal savings scheme. 3 News NZ. 10 October 2013.
  14. ^ FSC wants KiwiSaver contributions at 7pc. 3 News NZ. 14 October 2013.
  15. ^ Rt. Hon. Michael Cullen and Hon. Peter Dunne (30 August 2007). "KiwiSaver take-up figures take off.". Scoop. Retrieved 30 August 2007. 
  16. ^ "Nearly 130,000 people signed up to KiwiSaver.". Radio New Zealand. 30 August 2007. Retrieved 30 August 2007. [dead link]
  17. ^ Nikiel, Christine (27 October 2007). "KiwiSaver 'could become compulsory'". The New Zealand Herald. Retrieved 13 October 2011. 
  18. ^ "More than 300,000 join KiwiSaver". The New Zealand Herald. NZPA. 6 December 2007. Retrieved 13 October 2011. 
  19. ^ "KiwiSaver numbers closing in on 700,000". KiwiSaver press release 18 Jun 2008.
  20. ^ KiwiSaver breaks through 800,000 mark. beehive.govt.nz (19 September 2008). Retrieved on 19 August 2011.
  21. ^ [3][dead link]
  22. ^ KiwiSaver statistics as at 31 January 2010. Kiwisaver.govt.nz (31 January 2010). Retrieved on 19 August 2011.
  23. ^ KiwiSaver statistics as at 30 April 2010. Kiwisaver.govt.nz (30 April 2010). Retrieved on 19 August 2011.
  24. ^ KiwiSaver statistics as at 30 November 2010. Kiwisaver.govt.nz (30 November 2010). Retrieved on 19 August 2011.
  25. ^ Kiwisaver statistics as at 30 April 2012. Kiwisaver.govt.nz. Retrieved on 31 May 2012.
  26. ^ KiwiSaver Performance Survey March Quarter 2012. Retrieved 31 May 2012.
  27. ^ Scherer, Karyn (5 November 2007). "KiwiSaver: The devil's in the details". The New Zealand Herald. Retrieved 13 October 2011. 

External links[edit]

Lists of KiwiSaver scheme providers[edit]