Kiwi Saver Overview

Posted June 28th, 2007 by Dr James Pratt

Key Features

KiwiSaver is a voluntary savings initiative (administered by Inland Revenue) designed to help make it easier for New Zealander's to save for their future. For most people, KiwiSaver is work-based and contributions come straight out of their pay.

Membership benefits include:

  1. a $1000 tax-free kick-start
  2. a member tax credit of up to $1042.86 a year
  3. annual $40 subsidised scheme fees

After contributing for three years, KiwiSaver members can make a one-off withdrawal towards a deposit on their first home.

Savings are locked in until employees reach the age of eligibility for New Zealand Superannuation or for five years, whichever is later. Exceptions can be made for significant financial hardship, serious illness, death or permanent emigration.

After one year of membership, members can apply to Inland Revenue to take a contributions holiday. This can be between three months and five years.

Joining KiwiSaver

All NZ citizens and permanent residents under the age of eligibility for NZ Superannuation are eligible for the KiwiSaver scheme including:

  • beneficiaries
  • self-employed people
  • workers on a part-time or temporary contract

New Employees

The following new employees must be automatically enrolled by employers:

  • aged 18 and over
  • fit the eligibility criteria listed above
  • are not already a KiwiSaver member

The following new employees do not need to be automatically enrolled:

  • employed on a temporary contract of 28 continuous days or less
  • not required to have PAYE deduction made from their salary or wages
  • on paid parental leave

Employer requirements are to:

  • provide all qualifying new employees with a KiwiSaver employee information pack (KS3)
  • deduct KiwiSaver contributions from their first pay
  • provide their details to IRD using the KiwiSaver employee details (KS1) form or through ir-File
  • pay the contributions to IRD with the next PAYE payment

Opting Out

New employees can give their employer a New employee opt out request (KS10) form.

  • deductions can only be stopped when they have been employed for two weeks and up to eight weeks
  • any KiwiSaver contributions can then be refunded that haven’t already been sent to the IRD

Existing Employees

Existing employees can request to join KiwiSaver. The Employer’s responsibilities are then to:

  • give the employee a KiwiSaver employee information pack (KS3) within 7 days
  • check that they are eligible to join KiwiSaver
  • start making deductions from their pay if a KiwiSaver deduction form (KS2) is completed

Deductions

Employees can choose one of only two contribution rates – 4% or 8% of their gross salary or wages. This includes bonuses, commissions, extra salary, gratuity, overtime and other remuneration of any kind before tax.

If a rate is not selected, or a percentage other than 4 or 8% is elected, then deductions will be made at the default rate of 4%. If an employee wishes to contribute more than 8%, the additional contributions should not be made via the PAYE system, but paid directly (by the employee) to Inland Revenue or the Scheme Provider.

Calculating Deductions

Example: An employee earns $600 per week and contributes 4% to KiwiSaver.

  • Gross Pay $600
  • Less PAYE -$122.83
  • Less KiwiSaver contribution -$24
  • Net pay $453.17

Employer Contributions

Employers can choose to make contributions to an employee’s KiwiSaver account. The employer can decide whether to contribute and at what rate. Terms and conditions can also be placed on these contributions. For example, conditions may set out a period of time that employees must stay with the organisation before they can keep some or all of the employer contributions.

If the employer is contributing, then an employee can choose for the contributions to count towards their 4% contribution rate however, in this instance the contributions must vest in the employee immediately.

All employer contributions must be made through Inland Revenue.

An employee does not have to contribute themselves in order to receive an employer contribution however if an employer contribution is counting towards (or equaling the whole of) the 4 or 8% contribution, then they must vest in the employee immediately. Alternatively, the employer contribution can be on top of the 4 or 8% employee contribution rate.

Employers who select a KiwiSaver scheme for their employees as an employer-chosen scheme will not be liable if the scheme fails.

Employer contributions to KiwiSaver are exempt from SSCWT however the exemption applies to the lesser of:

  1. an amount equal to the employee's contribution, or
  2. 4% of the employee's gross salary or wages.

Any contributions over the exemption are subject to SSCWT.

KiwiSaver Scheme Providers

If someone joins KiwiSaver without selecting a scheme provider, or if the employer doesn’t have a preferred scheme, they will be allocated one (by Inland Revenue) to a default scheme.

Additional Information:

http://www.sorted.org.nz/home/sorted-sections/KiwiSaver

http://www.kiwisaver.govt.nz/

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