KiwiSaver is a voluntary retirement savings scheme open to all New Zealand citizens and people entitled to live in New Zealand permanently. Members can still get New Zealand Superannuation when they reach 65.
How KiwiSaver works
- KiwiSaver membership is not compulsory, but all new employees are automatically enrolled unless they are not eligible, or meet other criteria, e.g., they are under 18 years of age, or they are already a member and only need to provide a signed KiwiSaver deduction form.
- Although membership of KiwiSaver is not compulsory, if employers do not enrol new eligible employees in KiwiSaver and make compulsory employer contributions for them, the employer may have penalties imposed.
- Each year the government pays KiwiSaver members a tax credit of up to $521.43 (equivalent to $10 per week).
- Employees who are members of KiwiSaver can choose a contribution rate of either 3%, 4%, 6%, 8%, or 10% of their gross salary or wages. These are deducted from an employee’s PAYE payment.
- It is compulsory for employers to contribute to the KiwiSaver scheme for any employees who are enrolled as members. The rate is 3% of the employee’s gross salary or wages and these contributions are also paid direct to Inland Revenue through the PAYE system.
- Inland Revenue forwards contributions to the member’s chosen KiwiSaver scheme provider. If a KiwiSaver member has not selected a scheme provider, they will be allocated to a default scheme.
The government kick start payment of $1,000 was removed for anyone joining KiwiSaver after 2pm, 21 May 2015.
Opting out of KiwiSaver
- New employees can opt out of KiwiSaver if they have been automatically enrolled, but they must do this between the second and eighth week of starting a new job.
- After 12 months membership KiwiSaver members can apply to Inland Revenue to take a contributions holiday. Breaks can be from three months to five years. These requests need to be approved by Inland Revenue. A contributions holiday request form is available on the IRD website.
- Within 12 months membership, members can apply to take an early contribution holiday if they are experiencing or likely to experience financial hardship. This break can be for a minimum of three months to a maximum of one year.
- If you have been made redundant, then KiwiSaver contributions deducted from your pay will stop when your employment ends. Contributions will not be deducted from any redundancy payment you get.
Withdrawal of savings
- After three years of KiwiSaver membership you can withdraw some or all of your KiwiSaver savings (except for the government contribution) for the purchase of your first home. You may also qualify for a first home deposit subsidy under the First Home.
As an employer your responsibilities are to:
- check whether new or existing employees are eligible to be KiwiSaver members
- check whether a new employee should be automatically enrolled and if the criteria is met, enrol the employee
- distribute the KiwiSaver Employee information pack to new employees who are subject to automatic enrolment, and to existing employees who are considering joining
- advise employees joining KiwiSaver if you have an employer-chosen KiwiSaver scheme and give them the investment statement for that scheme, or
- advise employees joining KiwiSaver that you do not have an employer-chosen scheme and if the employee does not choose a scheme of their own, Inland Revenue will allocate the employee to a default scheme
- send the details of the new employees who are enrolled automatically, and existing employees who want to enrol, direct to Inland Revenue, i.e., name, address and IRD number
- deduct member contributions from members’ pay and make compulsory employer contributions, and forward both to the Inland Revenue with PAYE payments
- calculate employer superannuation contributions tax (ESCT) and pay to Inland Revenue
- send any new employee opt-out request forms to Inland Revenue
- stop or start deductions if advised to by the Inland Revenue.
KiwiSaver and tax
- Tax is paid on the profits your KiwiSaver investment earns. The tax rate you pay depends on the type of KiwiSaver scheme you are enrolled in.
- If your KiwiSaver scheme is a widely held superannuation fund, your investment earnings are taxed at 28%.
- All KiwiSaver default schemes are portfolio investment entities (PIEs). PIEs investment earnings are taxed using your prescribed investor rate (PIR).
- Withdrawals from your KiwiSaver scheme are tax-free.
More detailed information is available at – https://www.ird.govt.nz/kiwisaver