Most Read Contributor in New Zealand, September 2016
The KiwiSaver changes in the Budget will make the scheme more
sustainable and – from 1 April 2013 – will
leave employed KiwiSavers only modestly worse off in terms of their
overall savings incentives. KiwiSaver will also have a stronger
Member tax credits
The maximum member tax credit contribution from the Government
(MTC) will reduce from $1,042 a year to
$521 a year for the KiwiSaver year ending 30 June 2012.
This means that (when averaged on a weekly basis for
illustration purposes) the MTC will reduce from $20 to $10 a
The rate at which MTCs match a member's contributions will
also reduce from a $1 for $1 match to 50c for every dollar
contributed. This means that to receive the maximum $521 MTC
a member will still need to contribute $1,042 every KiwiSaver year
(1 July to 30 June).
The current tax exemption on compulsory employer contributions
to KiwiSaver will cease effective 1 April 2012. From this
date the 2% employer contribution will have employer's
superannuation contribution tax (ESCT)
deducted from it at a broadly PAYE-equivalent rate depending on the
employee's income level. Only the remaining net amount
will be paid to KiwiSaver.
This is the one change that was completely unheralded in last
However the negative impact of the removal of the ESCT exemption
will be more than compensated for, after a one year lag (from 1
April 2013), when the compulsory minimum employer contribution rate
increases from 2% to 3% of salary or wages. Following this
change, employed KiwiSavers will receive slightly increased
employer contributions to their accounts even after deducting
From 1 April 2013, the compulsory minimum employee contribution
rate will also increase from 2% to 3%, including for existing
members. Three percent will also become the default employee
contribution rate for those auto-enrolled (with the 4% and 8%
options and, it seems, the contribution holiday facility
What won't change
The $1,000 kickstart contribution for new joiners will
The worked examples accompanying the Budget announcements also
clarify that the targeted first home deposit subsidy of up to
$5,000 will be retained.
Chapman Tripp commentary
KiwiSaver as modified in these terms feels more intuitively
sustainable, and from 1 April 2013 the changes made will leave
employed KiwiSavers (at all income levels) only modestly worse off
in terms of the overall employer and Government savings
KiwiSaver will clearly be a much more workplace-focused scheme
if these changes proceed. The only incentive that
self-employed and non-employed KiwiSavers will now have after
joining KiwiSaver will be the maximum $521 a year MTC.
But, overall, these changes leave KiwiSaver intact (with war
wounds) from the perspective of members, employers and KiwiSaver
We also note with interest that the Budget refers approvingly to
the Savings Working Group recommendation of a one-off
auto-enrolment exercise in the future whereby all
employed persons who have not yet joined KiwiSaver are
automatically enrolled (with opt-out entitlements) in one fell
swoop. The Government intends discussing this recommendation with
employers post-budget to "look at how that might be done
without unnecessary compliance and administrative
Disclosure relief for providers
The Taxation (Annual Rates and Budget Measures) Bill, which has
already been introduced, includes transitional protection for
KiwiSaver providers against securities law breaches. This
means that KiwiSaver schemes can remain open to new subscribers and
will have a reasonable period to amend their offer documents.
The Financial Markets Authority has stated that in the meantime
it expects KiwiSaver providers to take all practicable steps to
ensure that potential investors are fully informed of the changes,
including information on provider websites, through adviser
networks and through investment statement supplements.
The Bill protects providers against non-compliance with any
securities-related statute if it starts before 31 July 2011 and
does not continue on or after that date, or if it relates to:
a prospectus registered before 27 May 2011, or
an investment statement dated before 27 May 2011.
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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