KiwiSaver

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", passed in September 2006.

Basic operation

Employee participants can choose to contribute either 4% or 8% of their gross pay, and can switch rates at any time. The self-employed and unemployed can choose how much they want to contribute. [http://www.ird.govt.nz/resources/file/eb4edd0bc7453de/ks12.pdf] While most KiwiSaver schemes have minimum contribution amounts for people in this category, there are several schemes that allow any level of contributions. [ [http://www.nzkiwisaver.co.nz Grosvenor KiwiSaver Scheme Home - Saving has never been easier! ] ] 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. [ [http://www.kiwisaver.govt.nz/being/opting-out/ KiwiSaver - Opting out ] ]

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., an annual $40 fee subsidy, and potentially a first home deposit subsidy.

KiwiSaver contributions can only be accessed in the following circumstances:
*A one-off withdrawal after three years to help in the purchase of the first home
*Serious illness
*Significant financial hardship
*If the person has been out of 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 until it reaches 4% on 1 April 2011.

Mortgage

"Some" provider funds will offer a mortgage diversion scheme where some of the money in a KiwiSaver account can be withdrawn to make mortgage repayments, after a person has been signed up for 12 months.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.

"You can use some of it to pay off your mortgage (if your scheme provider offers this option)." [ [http://www.sorted.org.nz/home/sorted-sections/kiwisaver/for-employees KiwiSaver for employees | Sorted ] ]

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. [http://www.kiwisaver.govt.nz/how/your-pay/] Children are not entitled to the tax credits. [ [http://www.dominion.co.nz/4206107a1865.html/ The Dominion Post: local, national & world news from Wellington's daily newspaper ] ]

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 superannuation, 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 major 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 card. However John Key, leader of the National Party, has stated that if National win the 2008 election "there won't be radical changes...there will be some modest changes to KiwiSaver". [" [http://www.nbr.co.nz/article/key-signals-modest-changes-kiwisaver-32886 Key signals 'modest changes' to KiwiSaver] ". "National Business Review" 9 July 2008.] 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.

Take-up

It was announced on 30 August 2007 that nearly 130,000 New Zealanders had signed up for the scheme.cite web|url=http://www.scoop.co.nz/stories/PA0708/S00541.htm|publisher=Scoop|author=Rt. Hon. Michael Cullen and Hon. Peter Dunne|title=KiwiSaver take-up figures take off.|accessdate=2007-08-30|date=30 August 2007] cite web|url=http://www.radionz.co.nz/news/latest/200708301640/nearly_130,000_people_signed_up_to_kiwisaver|publisher=Radio New Zealand|title=Nearly 130,000 people signed up to KiwiSaver.|accessdate=2007-08-30|date=30 August 2007]

In October 2007, after 3 months of operation, 200,000 people had signed up, leading Revenue Minister Peter Dunne 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. [Christine Nikiel. " [http://www.nzherald.co.nz/section/3/story.cfm?c_id=3&objectid=10472382 KiwiSaver 'could become compulsory'] ". "New Zealand Herald". 27 Oct 2007.]

On December 6, 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. [" [http://www.nzherald.co.nz/section/3/story.cfm?c_id=3&objectid=10480774 More than 300,000 join KiwiSaver] ". "New Zealand Herald". 6 Dec 2007.] By 31 May 2008 uptake had more than doubled to 673,000, with more than $900 million having been paid into KiwiSaver schemes. [" [http://www.kiwisaver.govt.nz/media/ks-media-mr-2008-06-18.html KiwiSaver numbers closing in on 700,000] ". "KiwiSaver press release" 18 Jun 2008.] With the number of employed persons in New Zealand being approximately 1.7 million [" [http://www.stats.govt.nz/products-and-services/hot-off-the-press/quarterly-employment-survey/quarterly-employment-survey-mar08qtr-hotp.htm Quarterly Employment Survey: March 2008 quarter] ". "Statistics New Zealand Press Release" 5 May 2008.] this represents an uptake of over 40% of the working population.

At 13 September, the number of KiwiSavers stood at 800,213. [http://beehive.govt.nz/release/kiwisaver+breaks+through+800000+mark]

Maximizing returns

There are several strategies that can be employed to maximize 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.
* 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.
* Borrowing money and putting it into KiwiSaver, if the interest rate on the borrowed money is low enough.
* Students can increase their student loan, which is currently interest-free, and put the money into KiwiSaver.
* "Salary sacrificing" — getting the employer to reduce the salary by (up to) 4% and to pay the 4% into the KiwiSaver account tax-free.
* Business owners "may" find it advantageous to pay themselves (and family members) a salary in order to get $1040 worth of tax credits. [Karyn Scherer. " [http://www.nzherald.co.nz/section/3/story.cfm?c_id=3&objectid=10473542 KiwiSaver: The devil's in the details] ". "New Zealand Herald". 5 Nov 2007.]
* All Australians are currently able to join and get the $1000 kick start. Anyone entitled to live in NZ indefinitely can join. This loophole may be closed in April 2008 with retroactive legislation. [Tamsyn Parker. " [http://www.nzherald.co.nz/section/1/story.cfm?c_id=1&objectid=10479445 Welcome, cobber, here's your $1000] ". "New Zealand Herald". 1 Dec 2007.]

See also

* Pension
* Pension system
* Superannuation in Australia
* 401(k)

References

External links

* [http://www.kiwisaver.govt.nz KiwiSaver website]
* [http://www.ird.govt.nz/kiwisaver/ Inland Revenue KiwiSaver page]
* [http://www.sorted.org.nz/calculators/kiwisaver-decision-guide/ KiwiSaver decision guide] from the [http://www.retirement.org.nz/ New Zealand Retirement Commission]
* [http://www.consumersaver.org.nz/ ConsumerSaver] - Consumers' Institute site
* [http://www.taxpolicy.ird.govt.nz/publications/files/200640.pdf KiwiSaver Act 2006]

Lists of KiwiSaver scheme providers

* [http://www.kiwisaver.govt.nz/interact/services/kiwisaver/locateprovider KiwiSaver website]
* [http://www.isu.govt.nz/templates/ISU/kiwisaverschemesregister.aspx?id=22800 Insurance and Superannuation Unit website]