Existing superannuation schemes
If you are an employer who already offers access to a registered superannuation scheme, you and your scheme trustees may want to consider:
- converting your existing scheme to a KiwiSaver scheme
- adding KiwiSaver to your existing scheme
- establishing a KiwiSaver scheme under an umbrella trust deed
- applying for an exemption from the KiwiSaver automatic enrolment requirements.
- converting your current scheme to a complying superannuation fund to take advantage of the:
- specified superannuation contribution withholding tax (which will become employer's superannuation contribution tax from 1 April 2008) exemption and,
- employer tax credit (from 1 April 2008).
Alternatively you can continue to operate your existing scheme independently of KiwiSaver.
Convert your existing scheme to KiwiSaver
To convert to KiwiSaver, the existing scheme will need to meet all of the KiwiSaver requirements including lock-in, permitted withdrawals and transferability. Its fees must also be reasonable.
Member and contributing employer consents must be obtained and, where required, the trust deed will need to be amended. These schemes must be registered as KiwiSaver schemes and meet ongoing KiwiSaver scheme requirements.
Convert your existing scheme to a complying superannuation fund
The Government Actuary can approve a registered superannuation scheme as a complying superannuation fund for purposes of the Income Tax Act 2007. The $1,000 government kick-start and the fee subsidy will not be paid to members of a complying superannuation fund.
For a scheme to be approved as a complying superannuation fund it must have certain membership rules:
- funds can't be withdrawn until the member reaches the age of eligibility for NZ Super or five years of membership, whichever is the later
- the scheme must meet the provisions of any enactment that requires a trustee to release funds from the scheme
- funds go to a member's estate when they pass away.
See Tax Information Bulletin Vol 19, No 1 (February 2007) for more information on:
- complying superannuation funds, and
- the specified superannuation contribution withholding tax (which will become employer's superannuation contribution tax on 1 April 2008) exemption for employer contributions to a complying superannuation fund.
Add KiwiSaver to your existing scheme
Alternatively, a KiwiSaver section can be added to an existing registered superannuation scheme under an umbrella trust governed by one trust deed. It must be registered with the Government Actuary as both a registered superannuation scheme under the Superannuation Schemes Act 1989, and as a KiwiSaver scheme.
You can do this before members have been notified, but notification must be made in the next annual report of the scheme or earlier. Members may elect to transfer their interest, either partially or in full, into the KiwiSaver scheme.
Compulsory employer contributions
From 1 April 2008 you will be required to make compulsory contributions to your employee's KiwiSaver account or complying fund at 1% of their gross salary or wage, rising to 4% in 2011. Any employer contributions you make to existing superannuation schemes count as compulsory employer contributions as long as:
- the amounts are paid to a scheme registered before 17 May 2007, and
- you provided employees with access to that scheme before 17 May 2007, and
- the employee was employed by you:
- before 1 April 2008, or
- under a collective agreement in force before 17 May 2007, that expires after 1 April 2008, under which you are required to contribute to an existing superannuation scheme,
and
- your employer contributions to that scheme vest in the employee within five years, and
- contributions are specified superannuation contributions.
Contributions to a registered superannuation scheme which meets these requirements are known as "other contributions". They count towards the compulsory employer contributions even if the scheme does not have similar lock-in rules to complying funds or KiwiSaver schemes.
Calculating deductions
Here is the formula to use if you are currently making employer contributions to a registered superannuation scheme:
| minimum compulsory employer contribution = |
| payment of gross salary or wages x compulsory rate |
| minus other contributions |
| minus hybrid scheme amounts |
Definitions
"Other contributions" means specified superannuation contributions you make for the employee during the pay period, such as employer contributions or subsidies for MPs, judicial officers and sworn police.
"Hybrid scheme amount" is the amount calculated by using the following formula:
| member's contribution x vesting percentage |
"Member's contribution" is the amount of the employee's contribution for the period to which the payment of gross salary or wages relate.
"Vesting percentage" is the percentage of the employee's total contributions to be added to those contributions five years after the employee first becomes a member of the registered superannuation scheme.
Check with your existing scheme to see if your contributions are hybrid scheme amounts.
Note
This information doesn't apply to contributions to defined benefit scheme. A defined benefit scheme is a scheme where the benefit does not relate to the investments of the scheme but is based on a formula that includes such things as a member's length of service and final salary.
Apply for an exemption from automatic enrolment requirements
You can apply to the Government Actuary for an exemption from the KiwiSaver automatic enrolment requirements. To qualify for an exemption you must offer a retirement savings scheme that:
- is a registered superannuation scheme
- is portable, so members can transfer their balance to the scheme when they join and to other schemes when they leave your employment
- is open to all new permanent employees, including part-timers
- has a total contribution rate of at least 4% of the employee's gross base salary or wages, including any employer contribution.
If the scheme allows employer contributions to count towards the employee's minimum contribution of 4%, these must vest fully in the employee on or within five years of the employee joining the scheme.
You may also be eligible for an exemption if you provide access to a defined benefit scheme that meets the first three bullet points above. It would need to accrue benefits at a minimum rate of 4% of the employee's gross base salary or wages.
Employees enrolled in existing work-based schemes that are exempt from the KiwiSaver automatic enrolment requirements will still be able to apply for the first home deposit subsidy, if they meet the eligibility criteria. They won't, however, get the government-funded $1,000 savings kick-start, or subsidised scheme fees.
If you have an exemption you will still need to make KiwiSaver available to employees who want to join, and make deductions for any existing KiwiSaver members who start working for you.
Example
Widgets Ltd applies to the Government Actuary for approval as an exempt employer because it offers its employees access to a registered superannuation scheme. On 16 July 2007, the Government Actuary approves Widgets Ltd as an exempt employer from that date.
On 17 July, Jeff is employed on a permanent, part-time basis by Widgets Ltd. Due to his employer's exemption, Jeff does not need to be enrolled automatically in KiwiSaver.
If Jeff opted into KiwiSaver or was already a KiwiSaver member when he started employment, Widgets Ltd would have to deduct member contributions from his salary and (from 1 April 2008) make compulsory employer contributions.
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Date published: 29 Jul 2008
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