The KiwiSaver Scheme                          

How does KiwiSaver work?

Any Kiwi up the age of 65 can join a KiwiSaver Scheme and get some of the benefits..

It is designed mainly for employees aged between 18 and 65, who can contribute 2% (3%) 4% or 8% of their gross salary or wages into a KiwiSaver scheme. They are known as KiwiSaver 'members'.

Savings are generally 'locked in' until the date a member reaches New Zealand Superannuation qualification age (currently 65 years) or the date on which they have been a member of a KiwiSaver scheme for a minimum of five years, whichever is later. In certain circumstances, a member may make a withdrawal for the purpose of purchasing a first home and may be able to divert some of their employee contributions to repay their mortgage, provided the scheme is offering an appropriate mortgage diversion facility and the terms of that facility permit.

After an initial contribution period of 12 months, members can take a 'contributions holiday', which means they suspend any further contributions for a period of up to five years (conditions apply). On the grounds of financial hardship, a contribution holiday of three months (unless the Inland Revenue agrees to a longer period) may be granted at any time after the member's first contribution is received by the Inland Revenue. Contributions holidays can be renewed.

Withdrawals before the age of 65 may be allowed if:

• A member is suffering or likely to suffer significant financial hardship or is suffering serious illness;
• A member permanently emigrates;
• A member dies;
• Required by an Act of Parliament;
• It is for the purpose of a member purchasing their first home.

There are specific criteria for these withdrawals and detailed information must be provided for the withdrawals to be permitted. See www.retire.co.nz for more details.

Members' contributions will be automatically deducted from their salary or wages by their employer. The KiwiSaver scheme may also automatically follow the member from one job to the next, meaning they only need the one KiwiSaver account over their entire working life.

From 1 July 2007, enrolment was automatic for employees starting a new job, and voluntary for existing employees. However, new employees can opt out up to eight weeks after starting their new job and any deductions made during this time will be refunded.

No, a person can choose whether they are part of KiwiSaver or not. KiwiSaver is open to all New Zealanders up the age  65.

Anyone over 18 starting a job is automatically enrolled in KiwiSaver. However, they can 'opt out' of KiwiSaver up to eight weeks after starting their new job, and any deductions made during this time will be refunded.

A person can also elect to 'opt in' to a KiwiSaver scheme regardless of their employment status. To do this, they need to either:

• Contract with a KiwiSaver scheme provider; or
• If an employee, give their employer a KiwiSaver deduction notice and Inland Revenue will automatically allocate them to a default KiwiSaver scheme if the employer does not have a preferred KiwiSaver scheme.

Choice is important in encouraging individuals to take an active interest in their financial decisions.

KiwiSaver members are able to:

• Choose a KiwiSaver scheme.
• Choose a contribution rate of either 2% default (3% from 1 April 2013) ,4%  or 8% of gross salary or wages before tax. They will be taxed on these contributions as they are with other income.
• Transfer between KiwiSaver schemes at any time.
• Cease contributions by applying to Inland Revenue for a contributions holiday after a minimum contribution period of 12 months. The contributions holiday will be for a period of up to five years (minimum three months) and can be renewed at the end of the period.
• Pay additional lump sums or transfer superannuation investments into their KiwiSaver scheme.

Information has been provided to help people make decisions about KiwiSaver to Employers and Employees by Inland Revenue. It is also available on the sites www.retire.co.nz or www.kiwisaver.govt.nz and www.sorted.org.nz

Inland Revenue will randomly allocate employees to a default provider, unless their employer has nominated a preferred scheme of which their employees will become members, or they choose to become a member of another scheme.

New members of KiwiSaver who do not select a preferred provider, and who are not allocated to a scheme by their employer, will be allocated to a default provider. The six default providers have been selected following an open and competitive tender process carried out by the Ministry of Economic Development last year.

The method of allocating a member to a default provider is expected to be by rotation around the six providers.

See www.retire.co.nz for more details.

People who saved through KiwiSaver benefited from a tax credit that matched their contribution, up to a maximum of $20 per week ($1,042.86 per year) from 1 July 2007 till 2011 when the Government have indicated this rate will change to $10 per week.

For those who are employees, compulsory matching employer contributions  was also phased in from 1 April 2008 and set as a maximum of 2% from 1 April 2009 and 3% from 1 April 2013.

These additional contributions will increase the funds available to members on retirement, helping to improve the adequacy of retirement incomes.

See www.retire.co.nz for more details.

Benefits

• All KiwiSaver members will be entitled to a $1,000 kickstart from the government.
• From 1 July 2007, all member contributions to KiwiSaver (and complying superannuation funds) were matched by a tax credit of up to $20 per week ($1,040 per year) that was paid directly into their KiwiSaver account (or complying superannuation fund). This halved to 50c or $521 pa for the year ending 30 June 2012.
• From 1 April 2008, all employees contributing to KiwiSaver (and complying superannuation funds) will also be entitled to a matching employer contribution as follows:

From	Minimum employee contribution (% of gross salary)	Employer contribution (% of gross salary)	Total employee and employer contributions (% of gross salary)
1 April 2008	2	1	3
1 April 2009	2	2	4
1 April 2010/11/12	2	2	4
1 April 2013+	3	3	6

After three years of saving, some savers that are first home buyers will be eligible for a housing deposit subsidy of $1,000 per year of saving, up to $5,000 in total. Eligibility for the subsidy is determined by the individuals income and house price caps. See www.retire.co.nz for more details.

Participation

• Employee contributions is voluntary.
• From 1 July 2007, most new employees were automatically enrolled in KiwiSaver, but can choose to opt out.
• Existing employees were able to opt in. New employees whose employer is exempt from automatic enrolment will also be able to opt in.

Contributions

The contribution rates from gross salary will be either 2, 4 per cent or 8 per cent. The contribution rate will be 2 per cent unless the higher rate has been elected by the employee.

• From 1 April 2008, employer contributions will not be able to count towards the minimum 2 per cent contribution for new KiwiSaver members.
• Anyone will be able to join KiwiSaver by contracting directly with a scheme provider and making contributions. These contributions can be of any amount subject to a provider's agreement and will be eligible for the member tax credit.

If you are self employed or not employed

• You will be able to join KiwiSaver by contracting directly with a KiwiSaver provider. You can do this via www.retire.co.nz 
• You can choose your contribution rate.
• You will receive the $1,000 KiwiSaver kickstart.
• Your contributions will be matched by a government tax credit.

Withdrawals

• Contributions are locked in until the age of eligibility for New Zealand Superannuation (currently 65 years of age) or five years of membership, whichever is the later.
• Exceptions will be made for some funds to be withdrawn for the purchase of a first home, significant financial hardship, serious illness and permanent emigration.

Choice of Scheme

• Savers can select their own KiwiSaver scheme and investment products and can change schemes or investment products at any time.
• Savers who do not specify a KiwiSaver scheme are allocated by Inland Revenue to a conservative investment strategy fund with one of six named default KiwiSaver scheme providers.
• Savers can only have one KiwiSaver scheme at any point in time.

Like private sector employees, employees in the State sector will be able to opt into KiwiSaver and receive KiwiSaver benefits, such as the member tax credit.

In some circumstances, contributions that State sector employers make to existing superannuation schemes e.g., the State Sector Retirement Savings Scheme (SSRSS), will count towards the required compulsory employer contribution. In these situations, employees will not be eligible for KiwiSaver compulsory employer contributions as well.

Costello Financial Services FSP 64521 have been providing Investment advice to Aucklanders since 1970. We are Members of the Institute of Financial Advisers. Our advisers have studied the KiwiSaver schemes and options and are available to provide appropriate advice to you. We have selected and can recommend a range of KiwiSaver providers which should suit most investors.  

For more online information or to calculate your KiwiSaver needs or costs or complete an appropriate online application, we recommend you visit our KiwiSaver site at www.retire.co.nz

If you would like material mailed or to talk with a Financial Adviser just email us here or call Auckland 09 4808308. We can send you appropriate investment statements , application forms and other material from a range of providers to assist your KiwiSaver decisions. Note this is a generic class service. For individual advice specific to your circumstances we recommend that you contact an Authorised Financial Adviser (AFA). Members of CFS are awaiting assessment for AFA - as at May 2011.

See our Disclosure Statement

Disclosure Statements relating to the financial advisers associated with this document are available on request and free of charge