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KiwiSaver Your questions on KiwiSaver answered: Employers, Employees, Self Employed and not employed

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Employers

Q. As an employer who already contributes to an employee Superannuation scheme do I have to contribute to KiwiSaver?

A. The automatic enrolment provisions will not apply in workplaces where the employer has an exemption from automatic enrolment. In order to apply for an exemption the employer must already provide access to a registered superannuation scheme that is a defined contribution scheme, is portable and is open to all new permanent employees. The minimum employee contribution combined with the maximum employer contribution must be at least 2% of the employee's gross salary, with any employer contributions that counts towards the 2 per cent vest fully in the employee on or within five years of the employee becoming a member of the scheme. An employer may also be exempt if it provides access to a defined benefit scheme that accrues benefits at a minimum rate of 2% of the employee's gross base salary or wages per year. 

"The government recognises that non-KiwiSaver employer-sponsored schemes have been in place for some time that incorporate desirable characteristics of KiwiSaver schemes. Arrangements to accommodate these employers and schemes have been made, such as expanding the eligibility to tax credits and allowing employer contributions to count towards employers' compulsory requirement, and will apply in specific circumstances." Refer Tax Policy

Employers

Q. Do I need to have a preferred provider?

A. No you don't have to choose a preferred provider but there are benefits to doing so. A preferred provider will supply additional material to employees and reduce employer administration. There will be an accredited adviser to assist with employee's decisions as to what sort of funds they should be investing in rather than the ultra conservative default scheme. Having a preferred provider may also give you access to group insurance benefits. This is not available through all providers though.

Employer Super

Q. Our firm has a superannuation scheme already and we contribute to employees funds how will the compulsory aspect affect us?

A. The Government will allow employer contributions to non-KiwiSaver schemes count towards compulsory contributions if the employee has been part of the scheme as at 1 April 2008 or employees have been with the employer prior to 1 April 2008 and the scheme is part of their contract. IRD Tax Policy - Budget 2007

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Employee

Q. I am existing employee and would like to opt-in to KiwiSaver. How do I go about this?

A. Firstly, you should choose the KiwiSaver Scheme you would like to use. You do not have to use the default providers, nor do you have to go with the provider that your employer may have decided to use as their preferred option. Remember, the choice is always yours. If you are unsure which KiwiSaver Scheme would suit you best contact Lyn at SoundFinance.

Secondly, go to your employer to complete a KS1 form which advises the IRD of your intention to participate. You will also need to complete a KS2 which authorizes your employer to make the deduction from your salary. And, thirdly, you need to complete your application for KiwiSaver and send it to your chosen provider or to the adviser that helped you with the process. Opting in will mean that there will be an eight week wait before funds actually go into your KiwiSaver account. This allows for people to change their mind. The funds will be held by the IRD during this period. This does not apply when investing direct as there is no need to go through the IRD with your payments.

Employee

Q.
My employer has a scheme and they contribute dollar for dollar can I still have a KiwiSaver?

A.
Employees whose employer is exempt from the automatic enrolment provisions by having a scheme in place will still be able to opt-in to KiwiSaver. Unfortunately you will need to contribute a further 2% of your salary. You will still be eligible for your $1,000 lump sum and matching contributions provided you are over 18 years of age and under 65. You may wish to ask your employer if they will contribute 2% to KiwiSaver and reduce the contributions to the existing scheme, i.e. if matching contributions are 6% reduce to 4% with 2% into KiwiSaver. However this will be up to your employer.

Employee

Q.
What happens if I change my mind and want to opt out?

A.
From 1 July 2007 all new employees will have to opt out if they do not want a KiwiSaver account. Deductions will be made automatically and between week two and week eight you can change your mind and opt out.

Employee

Q.
If my employer has a preferred provider but I want to choose my own will I still get all the benefits?

A.
Yes you will. Provided you are over 18 you also receive the tax credit (matching contributions up to $20 a week) and you will be eligible for all the benefits available to other staff members. It important to know that the KiwiSaver Scheme you invest in is your choice.It is not your employer�s choice.

Employee

Q.
I have been told that by going into KiwiSaver I'm not paying tax but will be taxed on my funds at the other end (when taken out). Is this true?

A.
You have been incorrectly informed. Your contribution is taxed before going into the scheme. This is how it works: say you are paid $500 gross a week; the tax on this at 19.5% is $97.50 leaving you with $402.50. As the sum paid to your KiwiSaver account is 4% of gross income the amount will be $20. You then take this off your after tax earnings and you will receive $382.50 in the hand.

NB This example has not been changed to refect the 2% minimum contribution. The calculation still applies however.

While in the scheme your funds will earn an income and these will be taxed. It is anticipated that all KiwiSaver schemes will be PIEs (Portfolio Investment Entity) which will mean that you will be taxed at your individual tax rate. You should check with your provider to ensure they are a PIE as this is the best tax outcome.

Employee - age related

Q. I'm 63 but am still working. Isn't it too late for me?

A. Not at all, you can still get your KiwiSaver and continue contributing for up to five years from when you start. You will still receive all the benefits available to younger employees. Although you can continue to contribute past the five years you will no longer receive the member tax credt. You will have to leave the funds for five years from the start date before accessing it.

Employee - salary sacrifice

Q. I earn over $60,000 a year can I use "salary sacrifice"?

A. Yes, you can. BUT...Aproach with care. KiwiSaver can and has already been changed once by politicians. There is talk of further changes to the tax system such as tax cuts in 2008 which is also an election year. It would be unfortunate if someone used KiwiSaver for salary sacrifice now only to discover that there was no real benefit after next year's Budget or some election year spending by the Government of the day.

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Self Employed

Q.
I am self employed. What benefits can I get from KiwiSaver?

A.
You can invest direct with a provider, using their minimum annual requirement if this suits. If you are in a position to invest $20 a week you will be eligible for the tax credit up to $1,042.86 a year. You will still receive the Government contribution towards fees plus the $1,000 kick start sum. You will be eligible for all benefits available to KiwiSavers apart from the employer contribution, of course.

Children

Q.
Is it true that I can have a KiwiSaver for my grandchildren?

A.
Yes, provided they have an IRD number you can invest direct for as little as $400 a year and some providers even allow nil contributions. Your grandchildren will have a great start in life and they will be eligible for all the benefits except the tax credit (matching of contributions) if they are under 18.

Children

Q.
My daughter and son-in-law tend to be spenders and I�m worried they will be able to take the money from my grandchild�s KiwiSaver. Can this happen as they are under age?

A.
Once a KiwiSaver has been opened and investments start only the owner (your grandchild) will be able to access the funds as it is in their name. However, they won�t be able to access funds themselves until retirement age which is currently 65. There are certain circumstances where early access will be allowed such as hardship and leaving NZ for good.

Children

Q.
What do you think of KiwiSaver for children? I heard that they will have to contribute when they start working but this may not be appropriate.

A.
Investing in KiwiSaver for children is a great idea. It gives them a head start in life. They will still get the $1,000 kick start but not the member tax credit if they are under 18. As long as the KiwiSaver has been in place for 12 months before they start working they can put contributions on hold so there is no problem there. However, if they are able to it would be wise to encourage continued investing.
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Fees

Q.
I heard that there are hidden fees. How can I be sure I don't pay too much?

A.
This is what Vance Arkinstall, chief executive of Investment Savings and Insurance Association (ISI) has to say:

"KiwiSaver has been designed to provide maximum investor safety. Consumers can take comfort that KiwiSaver schemes will be subject to strict regulation, a formal approval process, effective Securities law and rigorous monitoring.

"All KiwiSaver schemes are reviewed by the Government Actuary before approval and registration, particularly to ensure all fees and charges are both fully disclosed and are not unreasonable. It is only following this review that KiwiSaver schemes can be offered to the public.

"All KiwiSaver schemes will be managed in accordance with a Trust Deed. Each scheme must have a 'Professional Independent Trustee' who will ensure the scheme is being operated in accordance with the Trust Deed and the law (including the KiwiSaver Act, Securities Act and Securities Regulations Act and others).

"As an example, the Securities Act requires full disclosure of all fees and charges and that all information supplied must not be misleading."
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Employers

Employers  KiwiSaver can be designed to suit employer by adding group life insurance, income protection etc for staff - this is only available through some providers.  Employers can also access KiwiSaver as an employee or self employed depending on their employment status with IRD.

Employees

Employees  

  • $1,000 lump sum to all new KiwiSavers 
  •  Up to $20 per week matching of contributions - $1,042.86 maximum per year. This is a Member Tax Credit. 
  • Contribution of 2% matched by employer contribution. 
  • Up to $5,000 towards a first home after five years or $3,000 after 3 years. (Conditions apply) 
  •  Contribution holiday available after 12 months - maximum five years but renewable.

Self Employed

Self employed and other: i.e. children or direct KiwiSaver investors. 

  • $1,000 lump sum to all new KiwiSavers 
  • Up to $20 per week matching of contributions - $1,042.86 maximum per year. This is a Member Tax Credit and only applies to those aged 18 -64 and not a child's account. 
  • Up to $5,000 towards a first home after five years or $3,000 after 3 years. (Conditions apply) 

Updates December 2007

# Parliament passed the employer contribution legislation on 12 December reinforcing the proposals in May's Budget. As of 1 April 2008, employers will be required to contribute an extra 1% to their employees KiwiSaver account. Each year this contribution increases, until 2011 when they will contribute 4%. Employers will receive a tax credit of up to $20 a week per employee to help with this cost to the employer.

# Amongst other changes, Parliament also passed amendments to The KiwiSaver Regulations 2006 so that second-chance home buyers (who have a determination from Housing NZ that they are in the same financial position as a first home buyer) are eligible for first home ownership withdrawal. Redundancy payments will also be excluded from the definition of 'salary and wages'.

A Summary of Changes to KiwiSaver Effective 1 April 2009

Employee contributions and benefits: 

  • The minimum employee contribution is now 2% 
  • Existing members may continue to contribute 4% or they may reduce their contributions to 2%. A KS2 form will need to be completed to make the change. 
  • Employees may make up their contributions to $20 a week on a voluntary basis if their pay deductions are less that this. This way they will qualify for the maximum member tax credit. 
  • The $40 Government fee subsidy no longer applies for all KiwiSaver members. 

 

Employer contributions: 

  • The compulsory employer contribution rate is capped at 2%. 
  • Employer tax credits no longer apply.

"I'm a happy KiwiSaver client. Until I met Lyn I was unsure about KiwiSaver. She has answered all my questions fully and helped me to understand the benefits to me. One of the things I like about Lyn is that although she represents a number of different companies she helped me choose the one provider that would best suit my needs. She made the process an easy one. "I'd recommend Lyn to anyone wanting advice from KiwiSaver through to full financial planning."

Chris Phillips, Sweet Inspirations, Christchurch