Introduction

To view the full KiwiSaver Act 2006 (at www.legislation.govt.nz).

The KiwiSaver Act 2006 establishes KiwiSaver, a government-sponsored, work-based savings scheme. The purpose of KiwiSaver is to encourage a long-term savings habit and asset accumulation by individuals who are not in a position to enjoy standards of living in retirement similar to those in pre-retirement. KiwiSaver is aimed at increasing individuals' wellbeing and financial independence, particularly in retirement, and to provide retirement benefits.

Background

KiwiSaver is part of a package of government initiatives designed to increase the level of savings by New Zealand households and support New Zealanders in retirement. Other initiatives include the introduction of the State Sector Retirement Savings Scheme and the establishment of the New Zealand Superannuation Fund. The latter is aimed at pre-funding the cost to the government of New Zealand Superannuation. KiwiSaver was announced in Budget 2005 and builds on the recommendations of the Savings Product Working Group.

Key features

KiwiSaver will be implemented from 1 July 2007. It has implications for five broad groups:

• savers;
• employers;
• scheme providers;
• existing registered superannuation schemes; and
• government.

Savers

Participation in KiwiSaver will not be compulsory and will be open for individuals to join provided they are entitled to be in New Zealand indefinitely, up until the age of eligibility for New Zealand superannuation (currently 65). To overcome inertia, which prevents some people from saving, the Act requires employees starting new employment to be automatically enrolled in KiwiSaver with the right to opt out.

Employees automatically enrolled will have KiwiSaver contributions deducted from their salary or wages from their first pay. Employees can opt out of KiwiSaver by notifying Inland Revenue or their employer from the end of week two to the end of week eight after starting employment. Existing employees can opt into KiwiSaver through their employer or by contracting directly with a provider.

People who are not employees, such as the self-employed and unemployment benefit recipients, can opt into KiwiSaver by contracting directly with a provider and can make contributions based on the contract with the scheme provider.

Employees who are under 18 will not be subject to automatic enrolment but can opt in by contracting directly with a provider.

The Act gives KiwiSaver members the ability to:

• choose their own KiwiSaver scheme and investment risk-profile (for example, conservative, balanced or growth), but employees will be allocated to a default scheme with a default investment product if no choice is made;
• transfer between KiwiSaver schemes at any time;
• contribute at either 4% or 8% of the gross salary or wages paid by the employer (the 4% rate will be the default rate unless the higher rate has been elected by the employee);
• make voluntary contributions (in addition to contributions deducted from their salary or wages) directly to the provider or via Inland Revenue;
• cease contributions by applying to Inland Revenue for a contributions holiday after an initial membership period of 12 months. The contributions holiday will be for a period of between three months and five years and can be renewed at the end of the period.

Contributions will be locked in until the age of eligibility for New Zealand Superannuation or five years after the first contribution, whichever is later, with the following exceptions:

• withdrawal to assist with the purchase of a first home after at least three years membership;
• significant financial hardship;
• serious illness; or
• permanent emigration.

An upfront government contribution of $1,000 will be credited to a member's KiwiSaver account when contributions are first paid by Inland Revenue to the provider. This upfront contribution cannot be withdrawn to purchase a first home, or in cases of significant financial hardship or serious illness. The $1,000 contribution can be withdrawn if the member permanently emigrates and will be paid to the member's estate upon death.

There is no Crown guarantee of KiwiSaver schemes or products.

Employers

The Act requires employers to:

• advise Inland Revenue of the name, tax file number and address of new employees subject to automatic enrolment;
• provide all new employees subject to automatic enrolment with an information pack, supplied by Inland Revenue. This pack will contain information about KiwiSaver, an opt-out form and information about default providers and schemes;
• make deductions of KiwiSaver contributions from the gross salary or wages paid to employees who are automatically enrolled and pay this amount along with PAYE, student loan deductions or other tax obligations to Inland Revenue.

The Act allows employers to:

• have a chosen KiwiSaver scheme for their employees who do not select their own scheme;
• apply to the Financial Markets Authority for an exemption from the automatic enrolment rules if they provide access to an approved registered superannuation scheme. Employees whose employer is exempt from the automatic enrolment provisions will still be able to join KiwiSaver (by opting in).

The Act ensures that if an employer is merely acting as a conduit or passing on information about KiwiSaver to its employees the employer will not be liable as an investment adviser or promoter under the investment advisers and securities legislation.

Scheme providers

The Act establishes that KiwiSaver schemes will be governed by trust deeds and regulated similarly to registered superannuation schemes. All KiwiSaver schemes must be registered by the Financial Markets Authority. The Act provides for default schemes to be appointed for those who do not select their own scheme. Other providers will be able to offer schemes if they meet a minimum set of criteria, including having fees that are not unreasonable.

Registered providers will receive contributions direct from KiwiSaver members and via Inland Revenue and will invest those contributions on behalf of members.

Existing registered superannuation schemes

The Act provides three broad options for existing registered superannuation schemes that meet certain criteria:

• converting to a KiwiSaver scheme. Members of the registered superannuation scheme will become KiwiSaver members (with the consent of all members);
• establishing a KiwiSaver scheme within an existing registered superannuation scheme, under the existing trust deed. Members of the registered superannuation scheme can decide to become a KiwiSaver member at individual level; or
• continue to operate independently of KiwiSaver.

Government

The Act establishes Inland Revenue as the central administrator of KiwiSaver. This role includes:

• providing information about KiwiSaver to employers for distribution to employees;
• allocating new employees to a default scheme and sending the employee an investment statement for that scheme;
• receiving contributions from employers and others and on-paying these to providers (with interest); and
• administering contributions "holidays" and opt-out requests.

The Act requires the Financial Markets Authority to:

• register KiwiSaver schemes, including registered superannuation schemes that convert;
• set up and maintain a register of KiwiSaver schemes;
• approve employer exemptions from the automatic enrolment provisions; and
• undertake the ongoing regulation of providers.