Tax facts – 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, but younger participants can also use it to save a deposit for their first home. A employee can choose, to a certain degree, how much they will save. The employer has to contribute a minimum of 3 percent.

All New Zealand residents and people entitled to live here permanently up to the age of 65 are eligible for KiwiSaver.  All new eligible employees must be automatically enrolled in KiwiSaver.

However there are some employees who are exempt from automatic enrolment. These include:

  • Those under 18 years of age
  • Casual agricultural workers or Election Day workers
  • Private domestic workers
  • Casual and temporary employees employed under a contract of service that is 28 days or less.

Employees who are automatically enrolled can opt out but must do so within a specified time (from the end of week two of their employment to the end of week eight) by filing the prescribed from (KS10).

All eligible existing employees can join the scheme at any time they wish by notifying their employer.

There are three employee contributions rates, being three, four or eight percent.  The employee can elect the rate at which they want their contributions deducted.  If an employee does not elect a rate then the default rate of three percent will be used by the employer for contribution deductions made.

 

Compulsory Employer Contributions

From 1 April 2008 it became compulsory for employers to contribute to their eligible employees’ KiwiSaver scheme unless the employer is already paying into another registered superannuation scheme for the employee.

This minimum compulsory contribution rose to three percent from 1 April 2013.

Employer contributions are subject to Employer Superannuation Contribution Tax (ESCT) on a progressive scale based on the employees’ marginal tax rate.

Employers must:

  • Give new employees and other existing staff who are interested an Employee information pack (KS3)
  • Pass employees’ details to Inland Revenue to enable them to be enrolled
  • Deduct contributions from employees’ gross salary and pay these to IRD through the PAYE system.

Government Assistance

The government also:

  • Contributes $1,000 (tax free) when a member first joins
  • Pays annual member tax credit (for those 18 and over) of up to $521.43 (effective from 1 July 2011)
  • Funds first home deposit subsidy through Housing NZ if the relevant criteria are met.

 

Note: There is no Crown guarantee of KiwiSaver schemes or investment products of KiwiSaver schemes.

A list of KiwiSaver providers is available at www.kiwisaver.govt.nz

For more information on KiwiSaver and how this may apply to you give us a call or refer to the KiwiSaver for Employers information available on the IRD website.

Serious about your success?