KiwiSaver

Sections 13, 25, 89, 100, 101D, 101FB, 101FC, 101G, 226, and 229 of the KiwiSaver Act 2006; clause 9 of the KiwiSaver Scheme Rules; section YA 1 of the Income Tax Act 2007; section 68C of the Tax Administration Act 1994

A number of remedial amendments have been made to the KiwiSaver legislation. These amendments ensure that the KiwiSaver rules achieve their intended policy effect.

Key features

Withdrawal of funds on death

The accumulated funds in a member's KiwiSaver account, up to a maximum of $15,000, can be paid out on that member's death directly to a named person, in accordance with section 65 of the Administration Act 1969. The previous process required that probate or letters of administration be presented to the trustees of a KiwiSaver scheme before a deceased member's funds could be withdrawn. This new process is in addition to the probate or letters of administration procedures, and applies from 1 July 2007.

Liability to back-pay compulsory employer contributions

Employers who fail to comply with the automatic enrolment rules of the KiwiSaver Act by not making deductions from an employee's salary or wages when the employee begins new employment must back-pay any unpaid compulsory employer contributions once the non-compliance is detected. New section 101FB of the KiwiSaver Act limits an employer's liability to back-pay compulsory employer contributions to the lesser of the duration of the current employment relationship or the first year of current employment (provided the employee becomes a KiwiSaver member during either of those periods). The provision applies from 1 April 2008.

Repeal of section 13 (Employment in schools)

Under the previous rules, section 13 of the KiwiSaver Act provided that Ministry of Education employees who begin a new job at a state or state-integrated school were treated as starting new employment, despite remaining on the same payroll. Boards of Trustees, which are treated as the employer of school employees for KiwiSaver purposes, were exempt from automatic enrolment before 1 October 2008. This exemption ended when the State Sector Retirement Savings Scheme and the Teachers Retirement Savings Scheme were closed to new enrolments.

The end of the Boards of Trustees' exemption from automatic enrolment created compliance problems for the Boards and the Education Service Payroll, particularly when transferring employees across the education sector. Section 13 has been repealed so that employees who transfer between schools are not subject to automatic enrolment. The amendment applies from the date of Royal assent, being 6 October 2009.

Exempt employer provisions - sunset clause

Section 25 of the KiwiSaver Act limits the ability for employers who have established their own superannuation schemes to be eligible for exemption from the automatic enrolment rules. The provision does not restrict employers from setting up their own superannuation schemes. Instead, it prevents these employers from exempting themselves from the automatic enrolment rules unless the scheme is in existence at the date of Royal assent, being 6 October 2009.

Threshold for interest paid on refunds

Inland Revenue pays use-of-money interest on money to be refunded to KiwiSaver members and employers - for example, if a member opts out. An amendment to section 89 removes the minimum threshold of $5 for interest payments, so that interest is payable on all KiwiSaver refunds. The amendment applies from the date of Royal assent, being 6 October 2009.

Refund of employer contributions

Previously, a refund of KiwiSaver employer contributions could be used either to offset tax debt or be forwarded to the employer at the discretion of Inland Revenue. As employer contributions may form part of an employee's total remuneration package, section 100 of the KiwiSaver Act now requires that employer contributions are refunded back to the employer (for example, because an employee opts out of KiwiSaver), so those contributions are available to be refunded to the employee. The provision applies from 1 April 2008.

Extending "double dipping" provisions to existing defined contribution schemes

Section 101D of the KiwiSaver Act extends the legislation for preventing "double dipping" to existing defined superannuation schemes in which membership rights are portable. This means that members of a multi-employer scheme who change jobs to work for another employer who is part of the same scheme cannot continue to receive employer contributions for their existing scheme, as well as access compulsory employer contributions to KiwiSaver. The provision applies from 1 April 2008.

Hybrid scheme amounts and compulsory employer contributions

An employer who is contributing to an employee's existing superannuation scheme can offset the amount of those contributions against the amount of compulsory employer contributions to KiwiSaver. The amount that can be offset is the amount the employer is required to pay, including the amount of employer superannuation contribution tax that is payable on such contributions. The rules applying to hybrid scheme amounts did not refer to an employer's superannuation contribution. Section 101D of the KiwiSaver Act has been amended to provide that hybrid scheme amounts are inclusive of the amount of employer superannuation contribution tax payable. The provision applies from 1 April 2008.

Employer contributions for employees in two or more funds

New section 101FC of the KiwiSaver Act may exempt an employer from making a top-up contribution if an employee is a member of a KiwiSaver scheme and an existing employer superannuation fund. As long as the amount of the contributions to the existing employer fund is calculated using a rate equal to or greater than the compulsory employer contribution rate, there is no additional compulsory employer contribution payable to the employee's KiwiSaver account (even if the dollar amounts are uneven as a result of a different salary basis being used). The provision applies from 1 April 2008.

Complying funds - notice of eligibility to withdraw funds

Employers must make compulsory employer contributions into an employee's KiwiSaver account or complying superannuation fund if the employee is over 18 and is under the age of eligibility to withdraw (which is the later of the age of eligibility for New Zealand Superannuation or after five years of membership). Providers are required to notify Inland Revenue of the date when a member is eligible to withdraw his or her funds. The Commissioner may then notify the member's employer of the date so the employer can cease making compulsory employer contributions.

An amendment to section 101G of the KiwiSaver Act provides that, as complying superannuation fund providers have a direct relationship with employers, providers must inform employers directly (rather than via Inland Revenue) of the date upon which a member will be eligible to withdraw funds. The amendment applies from the date of Royal assent, being 6 October 2009.

Eligibility for kick-start payment

The KiwiSaver Act provided that when an individual ceased to be a member of a KiwiSaver scheme, and then rejoined, the person was not entitled to the kick-start payment even if the person had not previously received the payment. However, the policy intention was that each KiwiSaver member is eligible for one kick-start payment. Amendments to section 226 ensure that people who have not previously received a kick-start payment but subsequently become KiwiSaver members can receive the kick-start payment. The change applies from 1 July 2007.

Mortgage diversion - fixed dollar amount

Under the mortgage diversion facility, an amount diverted from a member's KiwiSaver scheme was required to be a fixed dollar amount. This requirement was considered by the superannuation industry to be administratively costly and complex. Section 229 of the KiwiSaver Act has been amended to remove this requirement, and applies from 1 July 2008.

Mortgage diversion - use of past contributions

The policy intent of the mortgage diversion facility is that only current or future contributions can be diverted to a member's mortgage. However, it was not clear whether the legislation achieved this intent. Consequently, there has been an amendment to section 229 of the KiwiSaver Act to ensure that a member can only divert contributions made after the person has joined the mortgage diversion facility, and cannot divert previous contributions as well. The provision applies from 1 July 2008.

First home withdrawal - contributions via Inland Revenue

The KiwiSaver Scheme Rules set out the requirements for withdrawing funds for the purpose of purchasing a first home. The previous wording of clause 8 specified that if a person joined KiwiSaver directly through a provider and contributed only via the provider, eligibility for first home withdrawal would be reset as soon as the person sent a contribution via Inland Revenue. Consequently, the three-year time period for eligibility to withdraw funds for a first home would restart from the date the contribution was received by Inland Revenue. An amendment to clause 8 corrects this, and ensures that a person who has not previously withdrawn funds for a first home can withdraw if at least three years have passed since the person joined a KiwiSaver scheme or made his or her first contribution. The amendment applies from the date of Royal assent, being 6 October 2009.

Commissioner discretion to back-date member tax credit

Non-compliance by employers with the automatic enrolment rules has implications for employees in terms of their entitlement to and accumulation of the member tax credit. If an employee was not automatically enrolled in KiwiSaver when they should have been, they will have a belated membership start date because their employer failed to begin deductions. This could result in these employees missing out on the member tax credit for periods of time against which their annual contributions could be pro-rated.

An amendment to the definition of "creditable membership" in the Income Tax Act 2007 gives the Commissioner a discretion to back-date a person's membership start-date when, because of circumstances outside the employee's control, deductions of KiwiSaver contributions did not begin at the correct time. The amendment applies from 1 April 2008.

Date for claiming member tax credit

Fund providers were required to claim a person's member tax credit for a member credit year on a date determined by the Commissioner. The reason for this was to ensure that each provider had the same opportunity to claim the credit and for the member tax credit payment to be pro-rated between providers for members who contribute to more than one scheme. However, the pro-rating of the credit was removed by the Taxation (KiwiSaver) Act 2007. Accordingly, the credit is paid to providers on a first-come, first-served basis, removing the need for a due date (other than after the end of the member tax credit year on 30 June). An amendment to section 68C of the Tax Administration Act 1994 repeals the requirement that the member tax credit must be claimed on a date determined by the Commissioner. The amendment applies from the date of Royal assent, being 6 October 2009.