KiwiSaver

Sections 64, 65, 66, 66A, 101B, 101D, 235 and schedule 4 of the KiwiSaver Act 2006; sections DC 7, MK 1, MK 9 to 14, RD 65, YA 1 and schedule 28 of the Income Tax Act 2007 and Regulation 20 of the KiwiSaver Regulations 2006; sections 2(1), 4(b), 8, 9 and 10 of the Employment Relations Amendment Act 2008

The new legislation gives effect to a number of changes to the KiwiSaver scheme that were foreshadowed by the new government in its 2008 general election campaign.

Key features and application dates

The new rules for KiwiSaver and complying superannuation funds involve amendments to the KiwiSaver Act 2006, the Income Tax Act 2007, the KiwiSaver Regulations 2006 and the Employment Relations Act 2000. The changes are:

The minimum employee contribution rate will be reduced to two percent of gross salary or wages from 1 April 2009.

• The compulsory employer contribution will be capped at two percent of the employee's gross salary or wages from 1 April 2009. (Increases in the compulsory employer contribution rate to three and four percent in section 101D(4) of the KiwiSaver Act have been removed.)
• The employer tax credit paid to employers to offset some of the costs associated with compulsory employer contributions will be discontinued from 1 April 2009.
• The exemption from employer superannuation contribution tax will be capped at the employer's minimum compulsory contribution rate of two percent from 1 April 2009.
• The fee subsidy of $40 a year paid to member's KiwiSaver accounts to offset some of the fees charged by providers will be discontinued from 1 April 2009.
• Sections 103(1)(h) and 110A of the Employment Relations Act, and section 101B(5)(b) of the KiwiSaver Act have been repealed. These provisions would have allowed an employee to bring a personal grievance if the employee was treated on a different basis as a result of being a KiwiSaver member or a complying superannuation fund member. The repeal is effective from 16 December 2008, the day after the Taxation (Urgent Measures and Annual Rates) Act 2008 received assent.
• Section 101B of the KiwiSaver Act now requires compulsory employer contributions to be paid in addition to an employee's gross salary or wages if the employee joins KiwiSaver. This rule will also apply if a KiwiSaver member starts new employment. Employers and employees may contract out of this requirement through good faith bargaining as part of the employment relationship. This provision applies from 15 December, the date on which the Taxation (Urgent Measures and Annual Rates) Act received Royal assent.
• New section 235 of the KiwiSaver Act provides protection against any non-compliance with securities-related legislation that may result from the enactment of the Taxation (Urgent Measures and Annual Rates) Act. In particular, this provision:
  • Allows a general exemption from compliance with an Act related to securities for a limited period from 15 December 2008 to 14 February 2009. This period allows providers to update prospectuses and register them with the Registrar of the Companies Office. It also allows them time to update and reprint investment statements or draft a statement of the changes as a result of legislative changes that will be included in an existing investment statement.
  • Allows an exemption from complying with regulation 7A(4) of the Securities Regulations 1983 for a limited period from 15 December 2008 to 30 June 2009. The effect of this exemption is that providers can insert a statement of the changes resulting from this legislation in an existing investment statement. It will apply to an investment statement that is first prepared and dated before 1 January 2009.

Detailed analysis

Employee contribution rate reduced

Sections 64, 65, 66 and 66A of the KiwiSaver Act have been amended to give effect to the new minimum employee contribution rate of two percent. Employees who are existing members before 1 April 2009 will continue to use their existing contribution rate as at 31 March 2009 of two percent, four percent or eight percent. For example, employees whose contribution rate is two percent under transitional rules provided by section 66A will continue to use that rate until they notify their employer under section 64(2) that they want to use a new rate.

For employees who join KiwiSaver from 1 April 2009 or existing members who begin new employment from that date, the new minimum contribution rate of two percent will be the default rate unless the employee requests to use a higher rate. For example, an existing KiwiSaver member starts new employment on 1 June 2009. Unless that member notifies the new employer of a contribution rate, the minimum contribution rate of two percent will apply. The employee can notify the employer that either the four percent or the eight percent rate should apply.

Under current law, employees can only change their contribution rate at intervals of three months or more unless their employer agrees otherwise.

For complying superannuation funds, item 7 of schedule 28 of the Income Tax Act 2007 has been amended to reflect the new minimum contribution rate of two percent.

Employer tax credit discontinued

Sections DC 7(1B), MK 1(2) and (4), and MK 9 to MK 14 of the Income Tax Act are repealed from 1 April 2009. The repeal of section DC 7(1B) removes the limitation on the amount that an employer can claim as a tax deduction for employer contributions to a KiwiSaver scheme or a complying superannuation fund.

The effect of the repeal of sections MK 1(2) and (4), and MK 9 to 14 is that employers are not able to claim an employer tax credit for employer contributions made on or after 1 April 2009. As the employer tax credit was calculated on a payment period in which PAYE is withheld in relation to an employee, the employer tax credit cannot be claimed for any pay period which ends on or after 1 April 2009. This is because the employer contribution payable in respect of the employee's contribution will occur at the same time as the employer deduction is made. Employers are able to claim a credit for employer contributions made in respect of employee contributions deducted in the year to 31 March 2009.

Fee subsidy discontinued

Regulation 20 of the KiwiSaver Regulations 2006 has been amended so that the fee subsidy is discontinued from 1 April 2009. Individuals who join KiwiSaver from 1April 2009 will not be entitled to the fee subsidy. Individuals who join KiwiSaver before 1 April 2009 will be entitled to receive the annual fee subsidy payable for the current year of membership. For example, if an individual is subject to the automatic enrolment rules on 1 February 2009 when the person started a new job and provided they do not opt out, the person will be treated as being a member from that date and will receive the annual fee subsidy of $40 in two instalments. The first instalment of $20 will be three months after Inland Revenue received the member's first contribution and the second will be six months later.

Compulsory employer contributions in addition to gross salary or wages

Section 101B of the KiwiSaver Act has been amended by replacing subsection (4) with new subsections (4) and (4A). The previous section required compulsory employer contributions to be paid in addition to the employee's gross salary or wages.

Subsection (4) provides that from 13 December 2007, an employee and employer are free to agree contractual terms that override the requirement to pay compulsory employer contributions in addition to gross salary or wages. The duty of good faith applies to these employment relationship negotiations. However, this requirement cannot be overridden after 15 December 2008^[1] if an employee becomes entitled to compulsory employer contributions as a result of becoming a new member or if an existing member starts new employment and the contractual terms and conditions do not account for the amount of compulsory employer contributions the employer is required to pay. In this case, new subsection 4A makes it clear that the compulsory employer contribution must be in addition to the gross salary or wages.

¹ This is the date of assent of the Taxation (Urgent Measures and Annual Rates) Act 2008.