Summary of changes to the Bill
New legislation for KiwiSaver has been passed. The most important and relevant points that you need to understand in relation to the management of your KiwiSaver schemes and your dealings with us are covered under the following headings:
- contributions
- eligibility rules and definitions
- member tax credits
- invalid enrolments
- other legislative changes.
Contributions
Employer contributions paid through us
While all employer contributions to KiwiSaver must be paid to us, any employer contributions for purposes other than retirement benefits (eg for life insurance premiums), must be paid directly to you (rather than through us).
Definition of salary and wages
The definition of salary and wages used to determine which payments need to have contributions deducted from them is changing. From 1 April 2008 deductions don't need to be made from:
- redundancy payments
- accommodation benefits, or
- taxable overseas living and accommodation allowances.
This also means that compulsory employer contributions are not required for these salary components.
Employer and employee contributions to a complying superannuation fund will continue to be based on the employee's gross base salary or wages rather than gross salary or wages.
ACC and paid parental leave
The legislation also clarifies that ACC weekly compensation and paid parental leave payments are included in the definition of "salary and wages" for KiwiSaver purposes.
However, KiwiSaver members receiving ACC or paid parental leave will not receive employer contributions from ACC or us.
Minimum contributions - transitional rules
As a transitional measure, from 1 April 2008 until 31 March 2012, if employees want to and employers agree, they can choose to use transitional contribution rates. So to begin with both employer and employee would put in at least 2% a year (making a total of 4%). The amount the employer must contribute will increase in 2010 to 3% and reach a minimum of 4% in 2011, inclusive of the compulsory employer contribution, as set out in the following table:
| 2008 | 2009 | 2010 | 2011 | 2012 | |
|---|---|---|---|---|---|
| Employer contribution | 2% | 2% | 3% | 4% | 4% |
| Employee contribution | 2% | 2% | 3% | 4% | 4% |
Where the transitional contribution rates are used, the employer contribution must vest in the employee immediately after it is made.
Compulsory employer contributions
From 1 April 2008 employers must make compulsory employer contributions to their employees' KiwiSaver scheme or complying fund. If employers are already making contributions to their employees' superannuation scheme they may be able to offset these against the new compulsory employer contribution, subject to certain conditions.
To begin with, employers must contribute a minimum of 1% (employers can contribute more if they wish). The amount employers must contribute will increase by 1% every year until it reaches 4% in 2011, as shown in the table below.
| From | 1 April 2008 | 1 April 2009 | 1 April 2010 | 1 April 2011 onwards |
|---|---|---|---|---|
| Employer contribution | 1% | 2% | 3% | 4% |
| Employee contribution | 4% | 4% | 4% | 4% |
Points to note:
- Compulsory employer contributions are not required when an employee is getting ACC or paid parental leave payments paid by us - if the employer takes part in ACC's partnership programme, or has an ACC employer reimbursement agreement, they need to continue to deduct any contributions that were in place before the employee's accident, unless the employee applies for a contributions holiday. The employer can choose whether to continue compulsory employer contributions.
- Employer contributions are also exempt from employer contribution withholding tax (formerly known as specified superannuation contribution withholding tax, or SSCWT) up to 4% of employees' gross salary or wages.
- The legislation requires that compulsory employer contributions must be paid on top of each employee's gross salary or wages. This rule will apply despite any previous contractual agreements the employer may have already made with any of their employees before 13 December 2007. From this date employers can offset future employer contributions against pay movements as long as they have been negotiated with their employees in good faith.
- KiwiSaver employer contributions are paid to us through the PAYE system. Contributions to complying funds are still paid directly to the scheme.
No "double dipping"
Amendments have been made to reduce the scope for employees to "double dip" - which means to receive employer contributions through both a KiwiSaver scheme or complying fund, as well as an existing superannuation scheme.
The KiwiSaver Act has been amended to allow contributions that were made for employees enrolled in a registered superannuation scheme under the terms of a collective agreement settled before 17 May 2007, to count towards KiwiSaver compulsory employer contributions.
Eligibility rules and definitions
Residency requirements
From 19 December 2007 the residency requirements for people joining KiwiSaver will be that they:
- are living or normally living in New Zealand, and
- must be a NZ citizen or entitled to stay in New Zealand indefinitely, and
- must be under the age of eligibility for NZ Super (currently 65).
Before 19 December 2007 the residency test was that you're personally present or normally personally present in New Zealand.
Private domestic workers
Private domestic workers can choose to fund their own employer contributions. If they do this they are also eligible for the employer tax credit.
Casual employment
There is a new definition of casual employment for KiwiSaver purposes. Casual employees engaged on an irregular and intermittent basis and who receive holiday pay with their wages are now not subject to automatic enrolment. However, the 28 day rule still applies.
Serious illness
The definition of serious illness has changed so that a member can only withdraw their funds under serious illness when they are permanently and totally disabled or near death. However, they will be entitled to withdraw the total accumulation in their account, including:
- the current value of the $1,000 kick-start,
- any member tax credits, and
- all vested employer contributions they have received.
An amendment to clause 13 of the KiwiSaver scheme rules also ensures that applications for withdrawal on the grounds of serious illness can be made without the need to complete a statutory declaration of the assets and liabilities of the applicant.
Employees opting in
Employees who opt in must have deductions made from their salary or wages - but they can choose which employers make deductions. All future employers after joining must make deductions unless the member is on a contributions holiday.
Member tax credits
The new Act clarifies a number of aspects of member tax credits:
- new formula for calculating member tax credits
- new member tax credits start date rules
- change to the definition of qualifying contributions
- the claim process.
New member tax credits formula
There are two steps to calculating the member tax credit:
Step 1 - Calculate member contribution rate
| Action | Example |
|---|---|
Divide member contributions by the lesser of:
|
Member's contributions = $1,300 Member's tax credit start date = 1 January 2008 Days from 1 January 2008 to 30 June 2008 = 182 Member contribution rate = 1300 / 182 = $7.14 |
Step 2 - Calculate member tax credit
| Action | Example |
|---|---|
| If member contribution rate is more than or equal to $2.86, multiply $1,042.86 by "included days" divided by 365. | Member contribution rate = $7.14 "Included days" = 182 Member tax credit = $1,042.86 x (182 / 365) = $520 |
| If member contribution rate is less than $2.86, then the member tax credit = member contributions for the year. | Member contribution rate = $1.64 Contributions made during the year = $400 Member tax credit = $400 |
New member tax credit start date rules
The legislation clarifies the member tax credit start date as follows:
| If the member joins through ... | then their member tax credit start date is ... |
|---|---|
| their employer - either by automatic enrolment or by opting in | whichever is the earlier of the first day of the month in which:
|
| a chosen provider - prior to 1 October 2007 (for both employees and non-employees) | the first day of the month in which a scheme provider receives a valid membership application form, as long as a contribution is received by either us or you during the period 1 July 2007 to 31 October 2007. |
| a chosen provider - on or after 1 October 2007 | whichever is the earlier of the first day of the month in which:
|
| their employer on behalf of the provider, in relation to a complying fund (where we are not involved in the collection of contributions) | the first day of the month in which you receive the first contribution from the member. |
Which contributions count for member tax credit
The legislation has been amended to change the definition of qualifying contributions. This has clarified that all contributions, with the exception of those that are diverted to mortgage repayment, count as qualifying contributions for member tax credit, even if they're subsequently withdrawn.
This means that the following are both counted in the calculation of member tax credits:
- contributions held by us that are paid out to a person if they close their KiwiSaver membership (for death, serious illness or significant financial hardship), and
- any (partial) withdrawal of contributions under relationship property settlements, serious illness and first home deposit.
Note:
- For KiwiSaver schemes, eligible contributions are all those made by (or on behalf of) the member for the member credit year - excluding employer contributions.
- Complying funds are able to operate on a "cash" basis, which means that contributions received in the member credit year count for member tax credit - regardless of what year they were deducted from the member's salary or wages.
Member tax credit claim process
The new legislation confirms that we will:
- determine each member's "member tax credit start date", and
- calculate their member tax credit entitlement on the basis of information received from you, and information already held by us, and
- make all member tax credit payments, including any supplementary payments.
Specific changes that have been made to the process, and other minor changes defined in the legislation, are:
- we can pay member tax credit to a member's "new" provider where requested to do so by the "old" provider
- we must pay member tax credit within 30 working days of receiving a "claim" from you
- where more than one provider makes a claim for the same member, member tax credit will be calculated and paid on a "first-in first-served" basis
- complying funds may make member tax credit claims without a member's IRD number.
Other minor changes
- When a member withdraws from their scheme under the permanent emigration provision, you are required to claw back member tax credits that you have received either directly from us or as a result of a scheme transfer. This clawback of member tax credits is required even when funds are transferred to a foreign scheme (as opposed to refunded to the member).
- When a scheme transfer occurs, the "old" provider is not required to notify the "new" provider of the value of member tax credits received for the member - we will be the central repository for member tax credit values paid.
- All members who die or withdraw due to serious illness within the first three months of contributing, will attract member tax credits on those initial contributions, providing the member has not opted out prior.
- Final payments of member tax credit in respect of closed accounts can be paid directly to the member or the member's estate rather than to the claiming provider.
Invalid enrolments
The new legislation acknowledges that KiwiSaver enrolments can be invalid for various reasons:
- an ineligible person is enrolled
- an employee is automatically enrolled in error
- an opt-in is accepted in error.
The Act provides a clear process on how to treat contributions and accumulations from invalid enrolments, and enables contributions to be repaid with interest. The process includes the following changes:
- invalid enrolments can be subsequently validated if the person does not opt out and later meets the criteria for KiwiSaver membership (eg they satisfy the residency requirements or fall within the automatic enrolment rules)
- the opt-out mechanism will apply to persons who are not eligible to be automatically enrolled as members of KiwiSaver
- refunds will be made when an enrolment cannot be subsequently validated and the member cannot opt out
- when a refund is necessary, you will be required to:
- refund to us the current market value of the investment at the time of the refund, and
- provide details of contributions received and any amount diverted under the mortgage diversion facility
- we will make refunds to invalidly enrolled individuals on the basis of their own contributions received (paid to you) with interest, set at the current rate payable under the KiwiSaver Act for funds held by us
- any employer contributions will be refunded by us to the employer in the first instance, for the employer and employee to decide who is the final recipient
- a permanent legislative authority will be established to allow us to make a refund, including interest, to a KiwiSaver member, if the contributions and the interest payable on those contributions were more than the value of the investment returned to us by you. This is so that any gains or losses between the current market value of the invalidly-enrolled person's investment and the value of their contributions (plus interest) will be borne by the Crown, and not by you or KiwiSaver members.
Late opt-out provisions
Originally a late opt-out could only be accepted during the initial three month holding period. However this was unfair on employees impacted by processing delays, as delays between when employers receive opt-outs and when they send them to us often caused invalid enrolments.
Now the Commissioner is able to accept a late op-out notice if it is received by the employer or the Commissioner in the period ending three months after the date on which the Commissioner received the first contribution for the person.
Initial holding period change
All initial contributions are held by us for three months starting on the earlier of:
- when we receive the first contribution (original legislation)
- when we are given notice that the person is a member (new legislation).
The effect of this change is to bring forward the initial holding period and release of contributions for non-employees who:
- subsequently become employees
- start making payments through us after more than three months of membership.
Final allocation of a member to a KiwiSaver scheme
Amendments to sections 48 and 51 ensure that final allocation to a Kiwisaver scheme does not occur when a dispute is underway and will ensure that final allocation to a KiwiSaver scheme occurs “as soon as practicable” three months after the Commissioner received the first contribution for the person.
Employer chosen schemes
Amendments made to:
- section 46 ensure that an employer can have a chosen KiwiSaver scheme for its employees only if the scheme is open to all employees (whether new or existing)
- section 50 clarify that the exemption for the Commissioner from sending an investment statement for a default scheme because an employer has a chosen scheme will apply only to employment that triggered the automatic enrolment rules
- section 57 clarify that an employer choice of scheme does not apply in the case of involuntary transfers
Other legislative changes
Refunds of employer contributions from providers to Inland Revenue
You are now required to refund to us any amount of employer contributions that were paid by the Commissioner in excess of the amount of the employer contribution that the Act requires.
This means that:
- you can refund less than the full amount, and
- there is no requirement to withhold employer contribution refunds if it would reduce member's contributions below the required rate.
Second chance home buyers
If Housing New Zealand Corporation determines that previous home owners are in the same financial situation as a first-time buyer, then they may also be eligible for the first home withdrawal.
After being a member of KiwiSaver for three years eligible previous home buyers may be able to withdraw all or part of their savings, including voluntary employer contributions (but excluding the $1,000 government kick-start and the member tax credit) to put towards buying their home.
If they've been contributing around 4% of their income to KiwiSaver or another approved superannuation scheme, they may also be entitled to a first home deposit subsidy.
Mortgage diversion facility
The KiwiSaver regulations will be amended to also extend the mortgage diversion facility to complying superannuation funds. This means that contributions may be withdrawn by a member from a KiwiSaver scheme or a complying superannuation fund, to pay towards their mortgage.
Responsible investment
The Act requires KiwiSaver schemes and complying superannuation funds to disclose their responsible investment policies from 1 April 2008.
Definition of independent trustee
The definition of independent trustee has been revised to include:
- representatives from a scheme's administration, and
- investment managers.
Complying superannuation funds - failure of employers to pay compulsory contributions
Providers of complying funds, if they know that an employer has failed to pay an amount of compulsory employer contributions, must now:
- issue a notice to the employer requesting payment of the contributions, and
- give notice to the Government Actuary if the amount remains unpaid.
Date published: 19 Dec 2007
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