Disclaimer: The Taxation (Urgent Measures and Annual Rates) Act 2008 is not yet available and therefore the information in this Update is based on the assumption that the Taxation (Urgent Measures and Annual Rates) Bill passed significantly unchanged. We will inform you if this is not the case.
KIWISAVER CHANGES PASSED INTO LAW
The much heralded changes to the KiwiSaver regime were passed into law on 11 December 2008.
YOU NEED TO ACT NOW
If you are a KiwiSaver provider, you need to get cracking to ensure your prospectus, investment statement and advertising materials comply with securities law before 14 February 2009. This is because 14 February 2009 is the day that the limited exemption from securities law compliance (where there is a non-compliance because of the KiwiSaver changes) will expire.
WHAT ARE THE CHANGES
The major changes to KiwiSaver are:
- A minimum contribution rate of 2%.
- Compulsory employer contributions of 2%.
- No member fee subsidy.
- No employer tax credit.
- ESCT exemption capped at 2%.
In addition to the above changes, the September Employment Relations Act amendments, which effectively prevented employers from offering alternative remuneration to employees who are not KiwiSaver members in lieu of KiwiSaver compulsory employer contributions, have been repealed. The amendments were repealed by the Employment Relations Amendment Act, which was passed into law on 12 December 2008.
The KiwiSaver Act has been amended in conjunction with this to allow employers and employees to factor compulsory employer contributions into their employment agreements. If an employment agreement does not factor in compulsory employer contributions, these must be paid on top of the employee's gross salary or wages. This amendment to the KiwiSaver Act is back dated, taking effect from 13 December 2007.
Member tax credits
We note that there was a last minute reversal on the National Party's 2008 KiwiSaver policy in relation to member tax credits. National had originally represented that it would cap the member tax credit at 2% of a member's gross salary or wages, subject to a maximum tax credit of $1,042 per year. This would have meant that several KiwiSaver members would not receive the full $1,042 tax credit. This policy was not implemented, and the member tax credit will continue to match member contributions up to the amount of $1,042 per year.
All of the KiwiSaver changes will be in force by 1 April 2009. Below is a brief guide as to what you need to do and by when.
14 FEBRUARY 2009
As mentioned above, a limited exemption has been granted which means you have until 14 February 2009 to make the necessary changes to your scheme and disclosure documents in order to comply with securities legislation.
Start by reviewing your prospectus to check whether it accurately reflects both the current position and the position after 1 April 2009 - it may not meet disclosure obligations as a consequence of the KiwiSaver changes.
Pay particular attention to disclosure surrounding member and employer compulsory minimum contribution rates, government contributions, fees and tax.
In all likelihood you will need to register a memorandum of amendments to your prospectus to accurately disclose the KiwiSaver changes. Remember to get in early because the Companies Office may not have capacity to deal with an influx of prospectus amendments in the first two weeks of February.
Investment statement update
It is likely that your investment statement will require similar amendments to those required for the prospectus.
If you have a current investment statement, or are in the midst of preparing one which will be used before 1 January 2009, then you are entitled to make any additional disclosures required (because of KiwiSaver changes) in the form of an insert.
The insert must:
- Supplement the investment statement by disclosing the information necessary to update the investment statement as a consequence of the KiwiSaver changes.
The information must be contained under the same headings and in the same order as those used in the investment statement, as prescribed by the Securities Regulations.
- Be set out in a consistent style or format.
- Clearly identify the information disclosed as relating to the particular questions.
The insert must be prepared and issued with investment statements by 14 February 2009 at the latest. The section which allows the use of an insert ceases to have effect on 30 June 2009. Therefore all investment statements must comply with the Securities Regulations by that date.
Investment statements prepared after 1 January 2009 must be updated to include all required disclosures in accordance with the Securities Regulations by 14 February 2009.
Advertisements and other documents
Remember to think laterally. Advertisements, and even disclosure documents for your other products which contain disclosures in relation to KiwiSaver, should be reviewed to ensure that the KiwiSaver changes introduced on 11 December 2008 do not cause these documents to cease complying with securities law. If they do, for example, if the documents become misleading by virtue of the KiwiSaver changes, you must update these documents before 14 February 2009.
1 APRIL 2009
This is the date on which the changes to contribution rates, fee subsidies, tax credits and the ESCT exemption come into effect.
Ensure your trust deed and participation agreements will operate as intended in light of the KiwiSaver changes. If contribution rates are hard coded into these documents, amendments will be necessary before 1 April 2009.
Ensure your systems are ready for the 2% minimum contribution rate and the removal of the fee subsidy. This not only means IT and administration systems but also includes any application forms attached to the investment statement, and any online material.
Be mindful that contributions may fluctuate more than usual. Employees are entitled to change their contribution rate to 2% by giving notice to their employer. On the other hand, compulsory employer contributions will increase from 1% to 2%. If you are a default provider, any new members who are enrolled after 31 March 2009 will make contributions at the new minimum contribution rate of 2%.
30 JUNE 2009
The exemption which allows an insert to be used with investment statements dated before 1 January 2009 will expire on 30 June 2009. Ensure that updated investment statements are printed and distributed ready for use from 1 July.
WE ARE HERE TO HELP
If you need assistance with your compliance requirements, or you'd like advice about any aspect of KiwiSaver, we are available to help.
Phillips Fox has changed its name to DLA Phillips Fox because the firm entered into an exclusive alliance with DLA Piper, one of the largest legal services organisations in the world. We will retain our offices in every major commercial centre in Australia and New Zealand, with no operational change to your relationship with the firm. DLA Phillips Fox can now take your business one step further − by connecting you to a global network of legal experience, talent and knowledge.
This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.