KiwiSaver changes 1 April 2009 – Questions and Answers
WILL THERE BE ANY FURTHER CHANGES TO KIWISAVER?
The government believes that the necessary major changes have been made to ensure the scheme is sustainable and affordable, and will therefore leave the basic architecture of the scheme unchanged. However, as more information is obtained about the scheme’s performance, some of the administrative details of the scheme may be reviewed and adjustments made to make the scheme run more efficiently. The government will endeavour to ensure there is consultation with key stakeholders on any further changes.
I AM ALREADY A MEMBER OF KIWISAVER CONTRIBUTING AT 4%. WILL I AUTOMATICALLY BE MOVED TO THE MINIMUM CONTRIBUTION RATE OF 2%?
No, current members will continue to contribute at their current contribution rate but will have the option to change to 2% if they feel that this is in their best interest.
IF I AM AUTOMATICALLY ENROLLED IN KIWISAVER AFTER 1 APRIL 2009 AND MY DEFAULT CONTRIBUTION RATE IS 2%, CAN I ELECT TO CONTRIBUTE AT A HIGHER RATE?
Yes, once you are enrolled in KiwiSaver you may elect to contribute at a higher rate, either 4% or 8%.
WHY HAS THE FEE SUBSIDY OF $40 A YEAR BEEN REMOVED?
The fee subsidy was designed before further incentives were added in Budget 2007. The current member tax credit gives incentive to members who contribute to KiwiSaver, reducing the need for a fee subsidy.
If I reduce my contribution rate to 2% will this also affect my Mortgage Diversion with Grosvenor?
Yes. But with Grosvenor you don’t need to complete a form or do anything as our System automatically only divert the percentage allowed. Under the current legislation you can only divert up to 50% of YOUR contributions to the Grosvenor KiwiSaver Scheme. You can’t divert any other contributions such as lump sums, employer contributions or Member Tax Credits. So if you change your contribution rate to 2%, you will only be able to divert 1% towards a mortgage for your principal place of residence.
AS AN EMPLOYER, I CURRENTLY CONTRIBUTE 1% INTO MY KIWISAVER EMPLOYEES’ ACCOUNTS. HOW DOES SETTING THE MINIMUM EMPLOYER CONTRIBUTION RATE AT 2% AFFECT ME?
You will need to increase your employer contribution rate to 2% from 1 April 2009, but are not longer required to contribute more than this amount.
AS AN EMPLOYER, I HAVE ALREADY CHOSEN TO CONTRIBUTE 4% INTO MY KIWISAVER EMPLOYEES’ ACCOUNTS. HOW DOES SETTING THE MINIMUM EMPLOYER CONTRIBUTION RATE AT 2% AFFECT ME?
This depends on the contractual arrangement you have with your employee about KiwiSaver employer contributions. You may wish to re-negotiate your superannuation offer with employees.
How does discontinuing the employer tax credit affect me as an employer/ employee?
As an employer, from 1 April 2009 you will no longer be able to claim the employer tax credit of up to $1,040 per employee from the government. This will mean you will have to absorb the cost of employer contributions in the short-term. Over time, the government expects that employer contributions will become a part of the normal wage bargaining process. As an employee, initially the employer tax credit will have no effect. However, over time, employer contributions will become part of the normal wage bargaining process.
HOW DOES THE REDUCTION IN THE EMPLOYER SUPERANNUATION CONTRIBUTION TAX (ESCT) EXEMPTION CAP AFFECT ME AS AN EMPLOYER/EMPLOYEE?
As an employer, you will have to administer the ESCT exemption. If you pay your employees at an employer contribution level above 2% (that is, above the amount exempt from ESCT), you will have to pay ESCT on those contributions. If you are an employee and your employer contributes above 2%, your employer will now pay tax on your employer’s contributions that are above 2%. This in effect means there will be less money going in to your KiwiSaver account. For those employees whose employers pay employer contributions at the minimum amount, there will be no change to your employer contributions.
WILL MY TAKE-HOME PAY BE REDUCED AS A RESULT OF EMPLOYER CONTRIBUTIONS?
The KiwiSaver Act is being amended to ensure that when an employee joins KiwiSaver, the compulsory contribution from their employer is a genuine addition to their existing gross pay. Over time, the changes will make it possible for employers to take total remuneration approaches to wage bargaining. The government will allow such arrangements to occur, if they are negotiated between employees and employers in good faith.
Click here to view our disclosure statement
Click here to email Thorners or Call Us on (04) 528 8088
Click here to view our disclosure statement.
Click here to email Thorners or Call Us on (04) 528 8088
KiwiSaver changes from 1 April 2009 for contributors
The National Government has made a number of changes to KiwiSaver following the confirmation of election policies with some amendments. Most changes will come into effect from 1 April 2009.
The Government’s changes to KiwiSaver legislation will reduce the minimum contribution for employees to 2% of gross salary or wages, matched by a reduced maximum compulsory 2% contribution from employers.
Is 2%+2% enough?
WHAT DOES HISTORY SHOW
The Retirement Commission states that New Zealanders should use 70% of their current income as a guide to the annual income required to keep them comfortable during retirement. With total savings reducing from 8% of an employee’s gross salary or wages to only of 4% (2%+2%) per annum, it is unlikely to deliver this result. Therefore, there is a need for New Zealanders to either voluntarily increase KiwiSaver contributions above the new minimum or look to other investment vehicles to make up the difference.
This table shows the value of KiwiSaver based on an individual with 35 years until retirement wanting 70% of a $60,000 income, which will provide $45,000 per year in retirement. How much should he/she save to reach this target?
What hasn’t changed?
RECEIVING $1,000 FROM THE GOVERNMENT
All KiwiSaver members will still receive $1,000 from the Government into their account when they join, to kick start their savings.
TAX CREDITS TO MATCH YOUR SAVINGS
Members aged over 18 who live in New Zealand will receive “member tax credits” from the Government to match their own contributions. The tax credits match savings up to $20/week ($1,040/year) and continue until you are able to withdraw from KiwiSaver.
HOME OWNERSHIP ASSISTANCE
As well as being able to withdraw their contributions after 3 years, members may be eligible for a home deposit subsidy of up to $5,000.
MORTGAGE DIVERSION LOWERS IMPACT OF SAVING FOR HOMEOWNERS
KiwiSaver members who already have a mortgage can divert half of their contributions to pay off the mortgage, after one year of saving. This lowers the barrier to joining for people in this situation.
What has changed?
FROM 1 APRIL 2009
THE MINIMUM MEMBER CONTRIBUTION RATE
The minimum member contribution rate will be reduced from 4% to 2%. The minimum contribution rate of 2% will become the default contribution rate for new employee members from 1 April 2009.
THE MEMBER FEE SUBSIDY
The member fee subsidy will be discontinued from 1 April 2009.
CAPPED COMPULSORY EMPLOYER CONTRIBUTIONS
Compulsory employer contributions will be capped at 2% and the employer tax credit will be discontinued from 1 April 2009.
THE EMPLOYER SUPERANNUATION CONTRIBUTION TAX EXEMPTION
The employer superannuation contribution tax exemption will be capped at the compulsory employer contribution of 2% from 1 April 2009. (That is equivalent to 2% of the employee’s gross salary or wages.)
WITH IMMEDIATE EFFECT
CHANGES TO THE EMPLOYMENT RELATIONS ACT
The KiwiSaver Act will be amended to make it clear that upon joining KiwiSaver, no employee can have their gross pay reduced as a result of employer contributions. This will ensure that when employees join KiwiSaver, the compulsory contributions from their employer are a genuine addition to their existing pay. The changes will also provide employers and employees with the ability to negotiate their own arrangements in good faith. The Employer Relations Act amendment relating to KiwiSaver will then be obsolete, and will be repealed from the date of assent of the Employment Relations Amendment Bill.
Click here to view our disclosure statement
Click here to email Thorners or Call Us on (04) 528 8088
RECEIVING $1,000 FROM THE GOVERNMENT
All KiwiSaver members will still receive $1,000 from the Government into their account when they join, to kick start their savings.
TAX CREDITS TO MATCH YOUR SAVINGS
Members aged over 18 who live in New Zealand will receive “member tax credits” from the Government to match their own contributions. The tax credits match savings up to $20/week ($1,040/year) and continue until you are able to withdraw from KiwiSaver.
HOME OWNERSHIP ASSISTANCE
As well as being able to withdraw their contributions after 3 years, members may be eligible for a home deposit subsidy of up to $5,000.
MORTGAGE DIVERSION LOWERS IMPACT OF SAVING FOR HOMEOWNERS
KiwiSaver members who already have a mortgage can divert half of their contributions to pay off the mortgage, after one year of saving. This lowers the barrier to joining for people in this situation.
What has changed?
FROM 1 APRIL 2009
THE MINIMUM MEMBER CONTRIBUTION RATE
The minimum member contribution rate will be reduced from 4% to 2%. The minimum contribution rate of 2% will become the default contribution rate for new employee members from 1 April 2009.
THE MEMBER FEE SUBSIDY
The member fee subsidy will be discontinued from 1 April 2009.
CAPPED COMPULSORY EMPLOYER CONTRIBUTIONS
Compulsory employer contributions will be capped at 2% and the employer tax credit will be discontinued from 1 April 2009.
THE EMPLOYER SUPERANNUATION CONTRIBUTION TAX EXEMPTION
The employer superannuation contribution tax exemption will be capped at the compulsory employer contribution of 2% from 1 April 2009. (That is equivalent to 2% of the employee’s gross salary or wages.)
WITH IMMEDIATE EFFECT
CHANGES TO THE EMPLOYMENT RELATIONS ACT
The KiwiSaver Act will be amended to make it clear that upon joining KiwiSaver, no employee can have their gross pay reduced as a result of employer contributions. This will ensure that when employees join KiwiSaver, the compulsory contributions from their employer are a genuine addition to their existing pay. The changes will also provide employers and employees with the ability to negotiate their own arrangements in good faith. The Employer Relations Act amendment relating to KiwiSaver will then be obsolete, and will be repealed from the date of assent of the Employment Relations Amendment Bill.
Click here to view our disclosure statement
Click here to email Thorners or Call Us on (04) 528 8088
Click here to view our disclosure statement.
Click here to email Thorners or Call Us on (04) 528 8088
