KiwiSaver
Issue: KiwiSaver employer and employee contribution rates
Submission
(New Zealand Institute of Chartered Accountants)
NZICA supports the increase of the default and minimum employee contribution rates to KiwiSaver and complying superannuation funds from 2% to 3%, and the increase in the compulsory employer contribution rate from 2% to 3%. However, it suggests that the application date should be postponed for 12 months, until 1 April 2014, in light of the current economic downturn.
Comment
The increase in the default and minimum employee contribution rates, and the compulsory employer contribution rates from 1 April 2013 were announced as part of Budget 2011. KiwiSaver members and employers will have nearly two years to plan for the 1% increase in contribution rates.
Recommendation
That the submission be declined.
Issue: Revision of prospectuses and investment statements
Submission
(New Zealand Institute of Chartered Accountants)
The current drafting of this clause is not clear on whether prospectuses and investment statements issued on or before the date of the bill’s assent must be revised to reflect the new contribution rates.
Comment
Officials do not agree that there is any uncertainty here. The first part of the clause gives KiwiSaver providers two months to update any new prospectuses. The second part of the clause removes the need to reissue statements or prospectuses that have already been registered at the date of Royal assent, and so ensures securities allotted under those prospectuses are not void. The drafting is consistent with two other provisions in the KiwiSaver Act relating to previous Government-initiated changes to KiwiSaver. This provision has been discussed with the Financial Markets Authority, which is content with the current drafting.
Recommendation
That the submission be declined.
Issue: KiwiSaver membership start date for employees enrolled via their employer
Submission
(Matter raised by officials)
The KiwiSaver Act 2006 should clarify the start date for employees who are enrolled in KiwiSaver to their employers, either by being automatically enrolled or by giving their employer an opt-in notice. It is necessary to know the start date in order to calculate minimum membership periods which apply when determining eligibility to make withdrawals from KiwiSaver.
Membership should be counted from the 15th of the month in which the employee’s first KiwiSaver contribution is deducted, not the date on which the employee is finally allocated to a KiwiSaver scheme, which occurs approximately three months later. This will ensure that the same start date is used for all employee contribution and interest calculation purposes.
Comment
The membership start date is relevant for determining certain minimum membership periods in relation to the KiwiSaver withdrawal rules. For example, KiwiSaver funds are locked in until the later of the date on which the member turns 65, or of five years from the start of membership.
Under the KiwiSaver Act an employer must automatically enrol new employees into KiwiSaver. Employees can also join KiwiSaver by giving their employer a deduction notice. Using either joining method, the employer then deducts KiwiSaver contributions from the employee’s salary or wages, and pays these to Inland Revenue. These deductions are recorded on the employer monthly schedule (EMS) as part of the standard PAYE process.
The Commissioner holds all initial KiwiSaver contributions for a period of up to three months from the date the first contribution is received. For automatically enrolled employees, this is because they may choose to opt out of KiwiSaver between days 14 and 56 of their employment (although later opt-outs may also be permitted in some circumstances). If the employee opts out of KiwiSaver, Inland Revenue will return any employee and employer contributions already received back to the respective parties.
Unless the employee or employer has chosen their own scheme, Inland Revenue provisionally allocates employees who enrol via their employers to one of six default KiwiSaver providers during the initial three-month period. This allocation will become final if the employee does not opt out within the timeframe. In either case, it is only after final allocation (three months later) that Inland Revenue sends the employee’s details and initial three months’ worth of contributions to the relevant KiwiSaver provider.
However, the employee should be considered to have become a member of KiwiSaver from the month they started making KiwiSaver contributions, not when their allocation to a particular KiwiSaver provider is finalised three months later.
To overcome this problem, an amendment to the KiwiSaver Act is proposed, to clarify that the membership start date for an employee who is enrolled into KiwiSaver via their employer is taken from the date on which their first contribution is received by Inland Revenue.
All KiwiSaver contributions will be treated as received by Inland Revenue on the 15th of the month in which deduction was made; the date is standardised because of inbuilt time-delays between payroll periods and the filing and processing of the EMS.
This will also bring the position of employees closer to that of members who enrol directly with a provider. In the latter case, the membership start date is generally taken from the date the person’s application to a KiwiSaver scheme is accepted.
This amendment will clarify the legislative position; for practical purposes this is already an accepted start date for employees that is used by KiwiSaver providers and Inland Revenue. It will also more closely accord with employees’ understanding of when they became KiwiSaver members.
The proposed amendment should apply from 1 July 2012.
Recommendation
That the submission be accepted.
Issue: Process for making KiwiSaver employee contributions after the employee’s end payment date
Submission
(Matter raised by officials)
An amendment is proposed to simplify the process for KiwiSaver members who have reached their end payment date (and so are able to make withdrawals from KiwiSaver) to choose whether or not to have employee contributions deducted by their employer.
These members should not be required to apply to Inland Revenue to record their choice, as it is a matter for the employee and employer in the first instance.
Comment
Most employees who are KiwiSaver members contribute to KiwiSaver via their employer’s payroll. Their employer deducts the employee contributions at the employee’s selected rate (2%, 4% or 8%) from their salary or wages, and pays them to Inland Revenue. The deductions are recorded on the employer monthly schedule (EMS) as part of the standard PAYE process.
KiwiSaver members who have reached their “end payment date” – which is the later of the date on which the member turns 65, or five years from the start of membership – have two options. They may either:
- withdraw their accumulated funds and close their KiwiSaver accounts; or
- keep their accounts open and remain members of KiwiSaver.
If they choose to remain in KiwiSaver after reaching their end payment date, members can continue to make contributions to their KiwiSaver scheme. These members will also be able to access their accumulated funds, and officials understand that many KiwiSaver providers intend to allow members to make partial withdrawals after the end payment date, while keeping their KiwiSaver accounts open.
Members who have reached their end payment date and are still employed should have the option of continuing to have employee contributions deducted from their salary and wages.[1] Other members will wish to cease making regular employee contributions at this point, because they have access to their KiwiSaver funds. They may cease contributing altogether or choose to make contributions on a more ad hoc basis, directly to their provider.
The proposed amendment will simplify the administrative process for employees in choosing whether to carry on making employee contributions after their end payments date, and provide for direct communication of their decision from the employee to the employer.
Officials recommend the proposed amendment apply from 1 July 2012.
Recommendation
That the submission be accepted.
1The requirement for the employer to make compulsory employer contributions ceases at the end payment date, although employers may choose to continue making employer contributions. The entitlement to member tax credits (MTCs) also ceases at