The National Government has made a number of changes to KiwiSaver following the confirmation of election policies with some amendments. Most changes will come into effect from 1 April 2009.
The Government’s changes to KiwiSaver legislation will reduce the minimum contribution for employees to 2% of gross salary or wages, matched by a reduced maximum compulsory 2% contribution from employers.
Is 2%+2% enough?
WHAT DOES HISTORY SHOW
The Retirement Commission states that New Zealanders should use 70% of their current income as a guide to the annual income required to keep them comfortable during retirement. With total savings reducing from 8% of an employee’s gross salary or wages to only of 4% (2%+2%) per annum, it is unlikely to deliver this result. Therefore, there is a need for New Zealanders to either voluntarily increase KiwiSaver contributions above the new minimum or look to other investment vehicles to make up the difference.
This table shows the value of KiwiSaver based on an individual with 35 years until retirement wanting 70% of a $60,000 income, which will provide $45,000 per year in retirement. How much should he/she save to reach this target?
What hasn’t changed?
RECEIVING $1,000 FROM THE GOVERNMENT
All KiwiSaver members will still receive $1,000 from the Government into their account when they join, to kick start their savings.
TAX CREDITS TO MATCH YOUR SAVINGS
Members aged over 18 who live in New Zealand will receive “member tax credits” from the Government to match their own contributions. The tax credits match savings up to $20/week ($1,040/year) and continue until you are able to withdraw from KiwiSaver.
HOME OWNERSHIP ASSISTANCE
As well as being able to withdraw their contributions after 3 years, members may be eligible for a home deposit subsidy of up to $5,000.
MORTGAGE DIVERSION LOWERS IMPACT OF SAVING FOR HOMEOWNERS
KiwiSaver members who already have a mortgage can divert half of their contributions to pay off the mortgage, after one year of saving. This lowers the barrier to joining for people in this situation.
What has changed?
FROM 1 APRIL 2009
THE MINIMUM MEMBER CONTRIBUTION RATE
The minimum member contribution rate will be reduced from 4% to 2%. The minimum contribution rate of 2% will become the default contribution rate for new employee members from 1 April 2009.
THE MEMBER FEE SUBSIDY
The member fee subsidy will be discontinued from 1 April 2009.
CAPPED COMPULSORY EMPLOYER CONTRIBUTIONS
Compulsory employer contributions will be capped at 2% and the employer tax credit will be discontinued from 1 April 2009.
THE EMPLOYER SUPERANNUATION CONTRIBUTION TAX EXEMPTION
The employer superannuation contribution tax exemption will be capped at the compulsory employer contribution of 2% from 1 April 2009. (That is equivalent to 2% of the employee’s gross salary or wages.)
WITH IMMEDIATE EFFECT
CHANGES TO THE EMPLOYMENT RELATIONS ACT
The KiwiSaver Act will be amended to make it clear that upon joining KiwiSaver, no employee can have their gross pay reduced as a result of employer contributions. This will ensure that when employees join KiwiSaver, the compulsory contributions from their employer are a genuine addition to their existing pay. The changes will also provide employers and employees with the ability to negotiate their own arrangements in good faith. The Employer Relations Act amendment relating to KiwiSaver will then be obsolete, and will be repealed from the date of assent of the Employment Relations Amendment Bill.
Click here to view our disclosure statement
Click here to email Thorners or Call Us on (04) 528 8088
RECEIVING $1,000 FROM THE GOVERNMENT
All KiwiSaver members will still receive $1,000 from the Government into their account when they join, to kick start their savings.
TAX CREDITS TO MATCH YOUR SAVINGS
Members aged over 18 who live in New Zealand will receive “member tax credits” from the Government to match their own contributions. The tax credits match savings up to $20/week ($1,040/year) and continue until you are able to withdraw from KiwiSaver.
HOME OWNERSHIP ASSISTANCE
As well as being able to withdraw their contributions after 3 years, members may be eligible for a home deposit subsidy of up to $5,000.
MORTGAGE DIVERSION LOWERS IMPACT OF SAVING FOR HOMEOWNERS
KiwiSaver members who already have a mortgage can divert half of their contributions to pay off the mortgage, after one year of saving. This lowers the barrier to joining for people in this situation.
What has changed?
FROM 1 APRIL 2009
THE MINIMUM MEMBER CONTRIBUTION RATE
The minimum member contribution rate will be reduced from 4% to 2%. The minimum contribution rate of 2% will become the default contribution rate for new employee members from 1 April 2009.
THE MEMBER FEE SUBSIDY
The member fee subsidy will be discontinued from 1 April 2009.
CAPPED COMPULSORY EMPLOYER CONTRIBUTIONS
Compulsory employer contributions will be capped at 2% and the employer tax credit will be discontinued from 1 April 2009.
THE EMPLOYER SUPERANNUATION CONTRIBUTION TAX EXEMPTION
The employer superannuation contribution tax exemption will be capped at the compulsory employer contribution of 2% from 1 April 2009. (That is equivalent to 2% of the employee’s gross salary or wages.)
WITH IMMEDIATE EFFECT
CHANGES TO THE EMPLOYMENT RELATIONS ACT
The KiwiSaver Act will be amended to make it clear that upon joining KiwiSaver, no employee can have their gross pay reduced as a result of employer contributions. This will ensure that when employees join KiwiSaver, the compulsory contributions from their employer are a genuine addition to their existing pay. The changes will also provide employers and employees with the ability to negotiate their own arrangements in good faith. The Employer Relations Act amendment relating to KiwiSaver will then be obsolete, and will be repealed from the date of assent of the Employment Relations Amendment Bill.
Click here to view our disclosure statement
Click here to email Thorners or Call Us on (04) 528 8088
