KiwiSaver
Encyclopedia
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.
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:
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.
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.
, 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However money can be withdrawn before retirement in a number of circumstances which are outlined in Schedule 1 (KiwiSaver scheme rules), of the KiwiSaver Act 2006.
. 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". 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. 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 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, ETF
s, mutual funds, bonds, and derivatives
. Americans and Australians have the ability to make such investment choices in their retirement accounts, he claimed.
In October 2007, after 3 months of operation, 200,000 people had signed up, leading Revenue Minister Peter Dunne
to say that
However he said that these were his personal views and not those of the government.
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. By 31 May 2008 uptake had more than doubled to 673,000, with more than $900 million having been paid into KiwiSaver schemes.
At 13 September 2008, the number of KiwiSavers stood at 800,213.
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.
In January 2010, it was reported that 1.3 million have joined Kiwisaver.
By April 2010, 1,401,005 joined Kiwisaver and payments of some $2.3 billion in this financial year ending June, 2010.
Latest figures show Kiwisaver numbers stand 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.
A policy initiative of the Fifth Labour Government of New Zealand
Fifth Labour Government of New Zealand
The Fifth Labour Government of New Zealand was the government of New Zealand between 10 December 1999 and 19 November 2008.-Overview:The fourth National government, in power since 1990, was widely unpopular by 1999, with much of the public antagonised by a series of free-market economic reforms,...
, 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
Employee participants can choose to contribute 2%, 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. While most KiwiSaver schemes have minimum contribution amounts for people in this category, several schemes allow any level of contributions. 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.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
Tax credit
A tax credit is a sum deducted from the total amount a taxpayer owes to the state. A tax credit may be granted for various types of taxes, such as an income tax, property tax, or VAT. It may be granted in recognition of taxes already paid, as a subsidy, or to encourage investment or other behaviors...
" (a payment from IRD
Inland Revenue Department (New Zealand)
Inland Revenue , previously known as the Inland Revenue Department, is the New Zealand government department responsible for the collection of over 80% of the Crown's revenue in New Zealand. It also collects and disburses social support programme payments and provides the government with policy...
) 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 (whichever is the later)
- 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
Fifth National Government of New Zealand
The Fifth National Government of New Zealand is the current government of New Zealand. It is led by Prime Minister John Key.After the 2008 general election the National Party and its allies were able to form a government, taking over from Helen Clark's Fifth Labour Government. The National party...
'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.
Mortgage diversion
Some provider funds offer a mortgageMortgage loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
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
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
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. Children are not entitled to the tax credits.Withdrawing funds
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 superannuationPension
In general, a pension is an arrangement to provide people with an income when they are no longer earning a regular income from employment. Pensions should not be confused with severance pay; the former is paid in regular installments, while the latter is paid in one lump sum.The terms retirement...
, 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)
Political issues
The KiwiSaver scheme was associated with one of the promises on Helen Clark's controversial 2005 pledge card2005 New Zealand election funding controversy
The 2005 New Zealand election funding controversy occurred in the aftermath of the 2005 New Zealand general election.Under New Zealand's political system, parties may only spend, during the 90 days before the election, up to a certain amount on campaigning . They must raise that money from their...
. However John Key
John Key
John Phillip Key is the 38th Prime Minister of New Zealand, in office since 2008. He has led the New Zealand National Party since 2006....
, leader of the National Party, has stated that "there won't be radical changes...there will be some modest changes to KiwiSaver". 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. 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
Otago Daily Times
The Otago Daily Times is a newspaper published by Allied Press Ltd in Dunedin, New Zealand.-History:Originally styled The Otago Daily Times, the ODT was first published on November 15, 1861. It is New Zealand's oldest surviving daily newspaper - Christchurch's The Press, six months older, was a...
opinion article 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, ETF
ETF
ETF may refer to:* Exchange-traded fund, an investment vehicle* European Training Foundation, a vocational training organization* European Transport Workers' Federation* Emergency Task Force, a tactical unit of the Toronto Police* Enriched text format...
s, mutual funds, bonds, and derivatives
Derivative (finance)
A derivative instrument is a contract between two parties that specifies conditions—in particular, dates and the resulting values of the underlying variables—under which payments, or payoffs, are to be made between the parties.Under U.S...
. Americans and Australians have the ability to make such investment choices in their retirement accounts, he claimed.
Take-up
It was announced on 30 August 2007 that nearly 130,000 New Zealanders had signed up for the scheme.In October 2007, after 3 months of operation, 200,000 people had signed up, leading Revenue Minister Peter Dunne
Peter Dunne
Peter Dunne is a New Zealand politician and Member of Parliament who leads the United Future political party. He has served as a Cabinet minister in governments dominated by the centre-left Labour Party as well as by the centre-right National Party...
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.
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. By 31 May 2008 uptake had more than doubled to 673,000, with more than $900 million having been paid into KiwiSaver schemes.
At 13 September 2008, the number of KiwiSavers stood at 800,213.
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.
In January 2010, it was reported that 1.3 million have joined Kiwisaver.
By April 2010, 1,401,005 joined Kiwisaver and payments of some $2.3 billion in this financial year ending June, 2010.
Latest figures show Kiwisaver numbers stand 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.
Maximising returns
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 4% of one's salary, but continuing to pay $20 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 $1040 worth of tax credits.
External links
- KiwiSaver website
- Inland Revenue KiwiSaver page
- KiwiSaver decision guide from the New Zealand Retirement Commission
- ConsumerSaver – Consumers' Institute site
- KiwiSaver Act 2006
- The Independent Kiwi Saver KiwiSaver Information Site