1 April 2009 - Employer Contributions of 2% of gross salary for employees
over the age of 18 nre now compulsory.
KiwiSaver changes
From the 1st April the minimum employer contribution rate
will be capped at 2%. There will be no further increases as previously
planned. The minimum contribution an employee can make has been reduced to
2%. However, the employer tax credit has been removed so it may now cost
you to provide this 2%. The $40.00 fee subsidy has also been removed.
Your existing members will not automatically move back to 2% unless they
request a new contribution rate.
If you decide to contribute more than 2% you may need to consider the tax
liabilities for the additional sums. This employer contribution
superannuation tax, ESCT of 33cents in the dollar could be dealt with in a
number of ways. For example you could agree with your employee to treat it
as salaries and wages. Get advice from your accountant.
You may have to make changes to any information you currently hold on
KiwiSaver including reviewing your induction packs and contracts.
KiwiSaver now attracts the possibility for a personal grievance if an
employee feels that their employment has been adversely affected because
they are a member of a KiwiSaver scheme or other complying superannuation
scheme. This could be because they feel they have not been given the same
bonus payments, promotion or training expressly because they are a KiwiSaver
member.
Click on the links to find more detailed information below.
· Savings are locked in until employee reaches eligibility for NZ
Superannuation or five years (which ever is longer) except for a first
home purchase, financial hardship, serious illness or permanent emigration
· A subsidy of up to $5000 is available to qualifying KiwiSaver
members who are purchasing their first home
· Depending on their scheme provider, some KiwiSaver
members may be able to divert up to half their contributions towards the
repayment of their mortgage
· Can convert to a KiwiSaver
scheme, establish a KiwiSaver scheme under an
umbrella trust or continue to operate individually of KiwiSaver
· Employers who offer Non-KiwiSaver
schemes that meet a number of KiwiSaver
criteria can be made exempt from automatic enrolment, however will be
exempt from certain KiwiSaver benefits
TheKiwiSaver Bill was passed in parliament on
the 30th of August 2006.
KiwiSaver is a new government initiative to
encourage New Zealanders to save for retirement. KiwiSaver
is open to New Zealand citizens, Australian citizens and people who hold
either a New Zealand or Australian residence permit.
All new employees (with some exceptions) will be automatically enrolled in
the KiwiSaver Scheme, with the option to opt
out after 2-8 weeks.
This automatic enrolment however does not apply to (among others):
· those under the age of 18
· the self-employed
· existing employees (even if they receive a promotion within the
company)
· casual employees who receive holiday pay with their wages and
work on an irregular/intermittent basis
·
seasonal workers who will be working for three months or less.
Even though they will not be automatically enrolled, they can choose to
opt into KiwiSaver at any time.
Being a member of KiwiSaver does not affect a
person’s New Zealand Superannuation (NZS
) entitlement, but is meant to complement it, providing a higher standard
of living for those in retirement.
As an incentive to join KiwiSaver, the
government will…
· make a one-off $1000 contribution to anyone who signs up for KiwiSaver
· contribute to member’s fees and
·
· exempt the employer’s contributions from withholding tax (up to a
cap).
Contributions to KiwiSaver will be 2% plus of
the employee’s gross salary, depending on how much the employee wants to
save. (This excludes redundancy payments, living costs overseas, NZ
boarding/free use of a house, accomodation benefits and taxable allowances
for accomodation.)
After automatic enrolment, the employer will immediately start making
deductions from the employee’s salary to go towards their KiwiSaver
scheme. If the employee wants to contribute more than 8% they will have
to do this directly to the scheme provider or the IRD, not through the
employer.
The employee can decide to opt out of the KiwiSaver
scheme between the end of week two and the end of week eight at their new
job. If they opt out, the IRD will
refund the contributions that they have made so far (if the employer has
sent their contributions to the IRD).
If the employee does not opt out of KiwiSaver
before the end of week eight, their contributions will be locked in (i.e.
they will be unable to access the money) until they reach the age for NZ
Superannuation (65) or 5 years after starting the scheme, whichever is
later.
The money can only be made available to the employee before the scheduled
date if they:
· face significant financial hardship (employees
will not be able to withdraw the $1000 kick start or member tax credits)
· purchase their first home (employees
will not be able to withdraw the $1000 kick start or member tax credits)
· suffer from a serious illness or
· decide to emigrate permanently (employees
will not be able to withdraw the member tax credit - this will be paid
back to the government)
As mentioned above, KiwiSaver members will be
able to access their savings for the purchase of a first home. After
three years of membership, members who meet the eligibility criteria will
also be entitled to a home ownership subsidy from the government of up to
$5000 ($1000 for each year of KiwiSaver
membership) as a one-off contribution for the purchase of their first
home.
So, for example, the entitlement will look as follows:
2 years’ membership – No entitlement
3 years’ membership – Entitled to up to $3000
4 years’ membership – Entitled to up to $4000
5 years’ membership – Entitled to up to $5000
More than 5 years’ membership – Entitled to up to $5000
Their eligibility is dependent on household income and regional house
price caps.
Depending on which scheme they choose, members may also be able to divert up
to half of their contribution towards repayment of their mortgage after
twelve months of membership.
During the first 12 months, KiwiSaver members
can only apply to cease contributions because of financial hardship.
After 12 months of membership, members can apply for a contributions
holiday of between 3 months and 5 years. After the end of the agreed
period of contributions holiday, the IRD will
notify the employer that they need to start making contributions again.
The employee can apply for another holiday if they wish to do so.
If the employee has more than one employer, they can ask for the
contributions holiday to be applied to some but not all of the employers.
If the employee goes on a contributions holiday, the employer does not
have to make the compulsory employer contributions. The employer can
choose to continue to make contributions however, if they wish to recieve
the employer tax credits.
There will be a number of KiwiSaver scheme
options to choose from. All KiwiSaver
schemes will:
· be provided by the private sector,
· be governed by trust deeds
· be regulated similarly to registered superannuation schemes and
· have different risk profiles (conservative, balanced or growth)
KiwiSaver schemes and products will not be
guaranteed by the government.
The employee can choose a KiwiSaver scheme
themselves, or they can be randomly allocated to a default conservative
scheme by Inland Revenue.
The employer is welcome to suggest a scheme to the employee but is
under no obligation to do so, neither are they liable for the outcome of
such advice.
Once they have selected a scheme, they can transfer between KiwiSaver
schemes and different risk profiles within a scheme.
· convert into a KiwiSaver
scheme (if all the members consent), or
· establish a KiwiSaver
scheme under an umbrella trust that also governs a registered
superannuation scheme or
·
continue to operate individually of KiwiSaver.
If the employer has an existing superannuation scheme which meets the KiwiSaver
criteria they can be made exempt from the automatic enrolment
requirements. Some of the KiwiSaver
criteria are:
· being open to all new permanent employees
· being portable
· having a minimum contribution of 2% of the gross salary or wages
If they are made exempt from the automatic enrolment:
· they will not be required to automatically enroll employees in
their scheme (or a KiwiSaver scheme)
· they will not be required to lock in contributions,
· but their
members will not receive the government contributions
· and
the employer contributions will be subject to SSCWT.
KiwiSaver will be administrated by the IRD
so that employers don’t have to spend a lot of time and money
administering KiwiSaver schemes. There are a
few things which the employer is required to do, however.
1. The employer needs to give all new employees an
information pack on KiwiSaver which will be
supplied by Inland Revenue.
2. If any existing employees choose to opt into KiwiSaver
they must give their employer a KiwiSaver
deduction notice, and the employer in turn will give them the KiwiSaver
information pack.
3. The employer then needs to give the name, address and IRD
number details of new employees and employees who choose to opt into KiwiSaver
to the IRD .
NOTE: If the
employee does not supply this information to the employer, the employer is
not required to give it to the IRD.
4. The employer must make KiwiSaver
deductions from new employees and existing employees who opt in and send
these payments along with PAYE to the IRD.
5. The employer needs to stop these payments if the employees
take contributions holidays or opt out of KiwiSaver
. The IRD will remind an employer when
to start making payments again once an employee’s contribution holiday has
finished.
6. The employer is also expected to notify the IRD
if the employee opts out of KiwiSaver.
7. As of 1 April 2009, employer contributions are compulsary,
at 2% aThe compulsory employer contributions do not apply to employees under
the age of 18 or those who are not having contributions deducted from their
pay.
Failure to provide the required information or failure to make
deductions can lead to fines of $50 (for small employers) or $250 (for
large employers).
Standard tax penalties apply if the employer makes the deductions but does
not pass them on to the IRD. The existing
criminal penalties will apply for employers who knowingly and consistently
ignore their KiwiSaver obligations. The
disputes process will be similar to the PAYE
disputes process.
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