Subpart 1 - Becoming members of KiwiSaver
Subpart 1 of the KiwiSaver Act 2006 contains the rules for individuals to become members by automatic enrolment when they begin new employment or by opting in.
Subpart 1 contains the rules for individuals to become KiwiSaver members by automatic enrolment when they begin new employment or by opting in.
The automatic enrolment rules generally apply to employees who start new employment if:
- they meet the residency requirements (as outlined under "Who the Act applies to");
- their new employer is not an exempt employer;
- they are 18 years or over, but less than the New Zealand superannuation qualification age (currently 65) when they start that employment;
- they are not already a member of a KiwiSaver scheme.
Section 11 defines "new employment". It means employment that is started on or after the date the automatic enrolment rules begin (1 July 2007), but does not include:
- temporary employment;
- employment where the employee remains on the same payroll that they were on immediately before starting the new employment (except in the case of schools); and
- employment with an employer that carries on the same business as was undertaken immediately before the new employment began (provided the employer gives the required notice to the Commissioner of Inland Revenue).
"Temporary employment" is defined under section 12 as employment that is as a casual agricultural worker 1 or employment that is under a contract of service for a period of 28 continuous days or less. Temporary employment ceases and the automatic enrolment rules apply (as if the person started new employment) if the person ceases to be a casual agricultural worker or if the employment is extended beyond 28 days.
The intention of the 28-day rule is to ensure that people in temporary employment are not subject to the automatic enrolment rules if the period of employment is 28 days or less.
Employment in schools
Section 13 provides that if an employee begins a new job at a state school or integrated school, they are treated as starting new employment, despite staying on the same payroll.
"Same business" is defined under section 11 as a business that in substance carries on the same or a similar role, regardless of whether the legal entity carries on the business changes. Same business includes:
- a company that results from, or continues after, an amalgamation under the Companies Act, involving the company that employed the person immediately before new employment was started;
- a business that takes over as a going concern the business that employed the person immediately before they started new employment; and
- creation of a new partnership as a result of a partner joining or exiting a business.
| Example one |
Company A buys a business owned by Company B. As part of the purchase agreement, the employees of Company B become employees of Company A. Company A provides the requisite notice to the Commissioner and the employees are not subject to automatic enrolment. If Company A did not provide the requisite notice, the employees would be subject to the automatic enrolment rules.
Other situations when automatic enrolment rules do not apply
Under section 14 the following situations are not considered new employment and the automatic enrolment rules do not apply if:
- the person is an employee only because he or she receives one of the following:
- payments to working partners;
- parental leave payments; and
- certain ACC payments.2
- the new employment is as an election-day worker or a private domestic worker;3 or
- the employee is not required to have tax deductions made from his or her salary or wages under the PAYE rules.
Beneficiaries are not subject to automatic enrolment
| Example one |
On 1 April 2007 Maria begins working full-time for K&S Ltd on a permanent contract. The automatic enrolment rules do not apply because they have not yet commenced.
On 1 October 2007 Scott begins working full-time for ABC Ltd on a permanent contract. Scott is 40 years old and is a New Zealand citizen. The automatic enrolment rules apply to Scott.
On 30 August 2007 Hamish begins a part-time job working for his local supermarket. Hamish is 15 years old and is a New Zealand citizen. The automatic enrolment rules do not apply because Hamish is under 18 years old.
Tama has been working for a local plumbing firm for the past five years in the same role. The firm is expanding and on 1 September 2007 it amalgamates with another plumbing firm. Because Tama's employer provided Inland Revenue with the required information to show that the same business was being carried on, the automatic enrolment rules do not apply to Tama because he has not started new employment.
On 1 January 2008 Steve begins new employment at a bank. The bank has been approved as an exempt employer because it provides employees access to a registered superannuation scheme that has been approved by the Government Actuary (Financial Markets Authority from 01.05.2011). The automatic enrolment rules do not apply to Steve because his employer is an exempt employer.
Neil, an Australian citizen aged 30, starts working for an accountancy firm on 1 October 2007. His contract is short-term and is due to expire on 11 October 2007. The automatic enrolment rules do not apply because Neil is a temporary worker. If Neil's contract was extended beyond 28 October 2007, the automatic enrolment rules would apply from 29 October 2007.
Matthew is from Los Angeles, is studying in New Zealand and is in the country on a student's visa. On 1 December 2007 Matthew begins a part-time job to help meet his living costs. Because Matthew is not entitled to be in New Zealand indefinitely in terms of the Immigration Act, the KiwiSaver Act does not apply to him and therefore the automatic enrolment rules do not apply.
On 10 July 2007 Mark begins working at the local library. Mark is a New Zealand citizen and is 70 years old. Because Mark is older than the New Zealand Superannuation qualification age, the automatic enrolment rules do not apply.
Trevor is already a member of a KiwiSaver scheme. On 10 June 2008 Trevor begins working permanently for a computer sales company. Because Trevor is already a member of KiwiSaver, the automatic enrolment rules do not apply to him.
Bronwyn is a teacher working permanently for Wadestown School and in January 2008 will begin working at Karori Normal on a permanent contract. Despite staying on the Ministry of Education payroll, the automatic enrolment rules apply to Bronwyn when she begins her new job.
Fran is a member of RetireEzy, a registered superannuation scheme (that is not a KiwiSaver scheme). Fran's bank provides access to the scheme and her employer is not affiliated to the scheme (or any other scheme) in any way. Fran begins a new job and is subject to the automatic enrolment rules. Although she is a member of an existing registered superannuation scheme, this does not affect the fact that she is subject to automatic enrolment (because her employer is not an exempt employer).
Andrew injures himself at work and begins receiving earnings compensation from ACC. The automatic enrolment rules do not apply to Andrew.
Bob becomes unemployed and starts receiving a benefit payment. He is not subject to automatic enrolment.
How employees can opt out
Sections 16 to 21 allow employees who have been automatically enrolled in KiwiSaver to opt out. Employees can opt out by giving an opt-out notice to Inland Revenue or to their employer. Opt-out notices will be included in the information packs that employers must provide to their employees but can also be given in any other form and manner permitted by the Commissioner.
An opt-out notice takes effect on the later of:
- day 14 of the employment that triggered the automatic enrolment rules (the end of week two);
- the date on which the opt-out notice is:
- accepted by the Commissioner, in the case of a notice given to the Commissioner; or
- received by the employer, in the case of a notice given to the employer.
An employer who receives an opt-out notice must notify the Commissioner no later than the time that they are required to deliver the next employer monthly schedule to the Commissioner.4
Time limit for opting out
Employees who are subject to automatic enrolment can opt out of KiwiSaver in the period beginning on the end of week two after beginning employment (day 14) and ending on the end of week eight after beginning employment (day 56).
Extension of opt-out period
The Commissioner may accept a late opt-out notice if one or more of the following applies:
- the employer did not supply the employee with an information pack within seven days of new employment starting with that employer;
- the Commissioner did not send an investment statement for the default KiwiSaver scheme that the employee was provisionally allocated to;
- the employer did not supply an investment statement for their chosen KiwiSaver scheme (if the employer's choice of KiwiSaver scheme is effective);
- events outside the control of the employee meant that the opt-out notice could not be given within the time limit for opting out and, in the opinion of the Commissioner, it is reasonable that a late opt-out notice be accepted.
The Commissioner may accept a late opt-out notice up to three months after the date on which the Commissioner receives the first contribution for an employee. If the Commissioner receives a late opt-out notice and does not exercise his discretion to accept it, the Commissioner must treat the notice as if it were an application for a contributions holiday, if the person was eligible to apply for a contributions holiday.
Commissioner must give notice to employer if employee opts out
If the Commissioner accepts an opt-out notice from an employee the Commissioner must, as soon as practicable, give notice to the employer stating that:
- the employee has opted out; and
- the employer must not make any further deductions of contributions from that employee, from the effective date of the opt-out.
Effect of opting out
From the date on which an opt-out takes effect, an employee ceases to be a member of any KiwiSaver scheme that the employee may have become a member of. The employer must stop making deductions of contributions from the employee's salary or wages, with effect on the next payment of salary or wages that the employer calculates. An opt-out notice only applies to the employment that triggered the automatic enrolment rules and does not apply to any other new employment that the employee may later begin.
Employers may refund any contributions deducted from the employee's salary or wage directly to the employee who has opted out or they can pay it to the Commissioner (who will refund it to the employee).
| Example one |
On 1 April 2008 Mike begins a new job and the automatic enrolment rules apply. On 15 May 2008 Mike opts out of KiwiSaver by giving an opt-out notice to his employer. His employer must cease making deductions of contributions from the next pay calculated after receiving the opt-out notice.
On 10 October 2007 Tracey begins a new job and the automatic enrolment rules apply. Tracey wants to opt out that day. However, Tracey cannot opt out until 23 October 2007.
On 5 November 2007 Renee begins a new job and the automatic enrolment rules apply. Ten weeks later, Renee decides she wants to opt out and sends an opt-out notice to the Commissioner. Because none of the circumstances for accepting late opt-out notices applied, the Commissioner declined the opt-out. Renee cannot opt out.
On 13 January 2008 Sam begins a new job and the automatic enrolment rules apply. Nine weeks later, Sam sends an opt-out notice to the Commissioner. Because Sam had been in hospital for the past seven weeks, the Commissioner considers it reasonable that a late opt-out notice is accepted. The Commissioner gives notice to Sam's employer stating that Sam has opted out and that deductions of contributions must cease. The Commissioner direct credits to Sam's bank account a refund of contributions deducted.
Carol works part-time and gets a second part-time job somewhere else. Carol was automatically enrolled in KiwiSaver for her first job, but is not a member, because she opted out. She is automatically enrolled again for the second job. She must opt out again for the second job if she does not want to be a KiwiSaver member.
Sections 33 to 37 contain the rules for people to opt into KiwiSaver.
Who can opt in?
A person can opt into KiwiSaver at any time, provided they:
- meet the residency requirements (as outlined earlier under "Who the Act applies to");
- are under the New Zealand superannuation qualification age;
- are not already a member of a KiwiSaver scheme; and
- are not subject to the automatic enrolment rules.
How to opt in
An individual can opt in by contracting directly with the provider of a KiwiSaver scheme or, if the person is an employee, by giving his or her employer a notice requiring deductions of contributions to be made from his or her salary or wages.
Persons aged under 18 may only opt in by contracting directly with a provider. If a provider of a KiwiSaver scheme accepts a person who is aged under 18 as a member of their scheme, the contract between the provider and the person must be treated for the purposes of the Minors' Contracts Act 1969 as if the person were aged 18 years.
Effect of opting in
Employees who opt in become liable to deductions of contributions from their salary or wages paid by the employer that the opt-in relates to, and from salary or wages paid as part of any other employment that the employee starts after opting in.
A person who has opted in cannot opt out.
| Example one |
Jean is working full-time and approaches her employer about opting into KiwiSaver. Because Jean is 67 years old, which is older than the current New Zealand superannuation qualification age, she is not eligible to join KiwiSaver.
Ashley, a 40-year old New Zealand citizen, has been working with the same firm for 20 years and wants to join KiwiSaver. He advises his employer that he wants to opt in to KiwiSaver and provides his employer with a notice requiring deductions of contributions. Ashley is subject to deductions of contributions from his next payment of wages. Ashley gets a second job so he can save for an overseas holiday. He is also subject to deductions of contributions from his new job.
Chloe is a 15-year old, New Zealand permanent resident who wishes to join KiwiSaver. She advises her employer that she wishes to opt in. Chloe cannot opt in via her employer (because she is under 18 years) but must contract directly with a provider of a KiwiSaver scheme. The scheme will notify Inland Revenue that Chloe is a member and Inland Revenue will advise her employer to start making deductions of contributions from her pay.
Mary has been on ACC for the past two years and wishes to join KiwiSaver. She can opt in by giving ACC notice that she wants deductions of contributions from her ACC payments.
Sections 24 to 32 contain the rules allowing certain employers to be exempt from the requirement to automatically enrol their new employees in KiwiSaver.
Purpose of being an exempt employer
Employers can apply to the Financial Markets Authority for approval for their employees to be exempt from the automatic enrolment rules if they provide access to an approved registered superannuation scheme which complies with specified criteria. A person who starts new employment with an exempt employer or who is an existing employee of an exempt employer is still able to opt in. In addition, a person who is already a member of a KiwiSaver scheme and who begins new employment with an exempt employer is still subject to automatic deductions of contributions from the salary or wages paid by that employer.
Criteria to become an exempt employer
For an employer to become an exempt employer it must provide access to a scheme that meets certain criteria. The key criteria that must be met are:
- the scheme is, in practice, open to all new employees;
- the scheme is a registered superannuation scheme;
- the member's interest in the scheme must be portable;
- if the scheme is a defined contribution scheme, the minimum amount that the employee must contribute combined with the maximum amount that an employee can compel the employer to contribute must be at least 4% of gross base salary or wages;
- any employer contributions that count towards the 4% must vest within the employee within five years;
- if the scheme is a defined benefit scheme, the actuary of the scheme must certify to the satisfaction of the Financial Markets Authority that the value of each employee's accrued benefits are increasing at an amount equivalent to at least 4% of gross base salary or wages.
Employers who provide a scheme for their employees under a master trust arrangement are eligible to seek an exemption and an employer who provides their employees with access to more than one scheme can also seek an exemption if, when taken as a whole, the scheme would comply with the criteria.
How to become an exempt employer
A person may apply to the Financial Markets Authority for approval of an employer as an exempt employer. The information must be accompanied by:
- information that satisfies the Financial Markets Authority that the scheme complies with the required rules;
- the names, addresses, and tax file numbers of each employer for whom the application is made; and
- details of the names, addresses, tax file numbers, and payroll arrangements of any other members of the group that the Financial Markets Authority may request if the application is made in respect of an employer that is part of a group of companies.
Within 28 days of receiving an application for approval of an employer as an exempt employer the Financial Markets Authority must:
- consider whether he or she is satisfied that the employer is eligible to be approved as an exempt employer; and
- if he or she is satisfied, approve the employer as an exempt employer and register the employer on the register of exempt employers.
The Financial Markets Authority must give notice to the employer as soon as practicable after approving or not approving the employer as an exempt employer. For those employers who have been approved, the notice must specify an effective date after which employees who start new employment with the employer will be exempt from the automatic enrolment rules.
The Financial Markets Authority must give notice to the Commissioner as soon as practicable after an employer is approved as an exempt employer.
Revocation of exempt employer approval
The Financial Markets Authority may revoke an exempt employer approval if:
- the Financial Markets Authority has given at least 28 days notice to the employer that he or she is considering whether to revoke the approval; and
- the Financial Markets Authority is satisfied on reasonable grounds that the employer no longer provides access to a scheme that complies with the requirements outlined above.
A revocation may be on application from the employer or on the Financial Markets Authority's initiative. The Financial Markets Authority must:
- give notice to the employer as soon as practicable after revoking the approval;
- specify in that notice an effective revocation date after which employees who start new employment with the employer will be subject to the automatic enrolment rules (unless those rules do not otherwise apply);
- remove the employer from the register of exempt employers; and
- give notice to the Commissioner as soon as practicable after an employer is revoked as an exempt employer.
Register of exempt employers
Sections 156 and 161 establish a register containing the names of employers who are exempt employers.
| Example one |
Widgets Ltd applies to the Government Actuary (Financial Markets Authority from 01.05.2011) for approval as an exempt employer because it offers its employees access to a registered superannuation scheme. On 16 July 2007 the Financial Markets Authority approves Widgets Ltd as an exempt employer effective from that date. On 17 July 2007 Jeff is employed on a part-time, permanent basis. Jeff, although a New Zealand citizen who is over 18 years old and under the New Zealand superannuation qualification age, is not subject to automatic enrolment. If Jeff opted into KiwiSaver, Widgets Ltd would be required to make deductions of contributions from his salary.
Sarah is a KiwiSaver member and begins a new job. Sarah's new employer has been approved as an exempt employer. Because Sarah is already a KiwiSaver member, the employer is still required to make deductions of KiwiSaver contributions from Sarah's wages.
Frank & Williams Ltd was approved as an exempt employer. It receives notification from the Government Actuary (Financial Markets Authority from 01.05.2011) that from 1 April 2008 it has been revoked as an exempt employer because it no longer meets the requisite criteria. From that date, employees who begin new employment with Frank & Williams Ltd are subject to the automatic enrolment rules (to the extent that they apply).
Effect of membership of KiwiSaver
The effect of automatic enrolment or opting in is that:
- an employee will have automatic deductions of contributions made from his or her salary or wages. Deductions start from the next pay calculated after the new employment begins or the person opts in;
- an employee must continue to have deductions made from his or her salary or wages paid in respect of any new employment; and
- the person will become a member of a KiwiSaver scheme.
A person who is subject to automatic enrolment or who opts in will be a KiwiSaver member until the earliest of:
- an opt-out notice taking effect (this only applies to people who are subject to automatic enrolment);
- the New Zealand superannuation qualification age being reached or five years of membership, whichever is later;
- the provider terminating the employee's membership of a KiwiSaver scheme because the balance in all of their accounts reaches zero (at the option of the provider); or
- the date of withdrawal or transfer to a foreign scheme in the case of permanent emigration.
Employees will continue to be liable for deductions of contributions until the earliest of:
- ceasing to be a KiwiSaver member;
- the date on which the employer is given notice that they are taking a contributions holiday; or
- the employee is not required to have tax deductions made from his or her salary or wages under the PAYE rules.
While members who reach the age at which withdrawal is permitted or who permanently emigrate will be able to access their funds in whole and cease to be a KiwiSaver member, it is not a requirement that they do so.
| Example one |
Betty opts in to KiwiSaver at age 62. Betty continues to contribute to KiwiSaver and remains in New Zealand. She will continue to be a member until at least age 67. At age 67, Betty decides that she does not want to access her funds. Betty continues contributing to KiwiSaver and is still a KiwiSaver member.
Peter is a KiwiSaver member and moves to Australia permanently. After being overseas for one year Peter withdraws all of his funds (under the permanent emigration rules in Schedule 1 of the Act) and ceases to be a KiwiSaver member.
Nathan has been automatically enrolled in KiwiSaver and successfully opts out on 7 January 2008. Nathan ceases to be a member as at that date.
Sections 22, 23, 34, 38 and 39 require information about individuals who are automatically enrolled or who opt in to be provided to employers and to the Commissioner.
Employees who begin new employment or who opt in via their employer
Every person who starts new employment must give notice to their employer of:
- his or her name and address;
- his or her tax file number; and
- whether or not he or she is already a member of a KiwiSaver scheme and, if they are a member, must either:
- give their employer a notice requiring deductions of contributions from their salary or wages; or
- give or show to their employer a copy of a notice from the Commissioner stating that he or she has been granted a contributions holiday.
The information must be given as soon as practicable after the person starts the new employment. Employers are required to give notice to the Commissioner of the information that the employee provides them, if the employer is satisfied that the employee is subject to the automatic enrolment rules.
Persons who opt in via their employer must provide their employer with their name, address and tax file number. Employers are required to give notice to the Commissioner of the information that the employee provides them, if the employer is satisfied that the employee is eligible to opt in.
Employers must provide the above information no later than the time they are next required to deliver an employer monthly schedule to the Commissioner.
| Example one |
NW Inc. is satisfied that their new employee, James, is subject to the automatic enrolment rules. James only provides NW Inc with his name and tax file number (James does not provide his address). NW Inc. is required to give the information that James supplied to the Commissioner no later than the time it is next required to deliver an employer monthly schedule to the Commissioner. NW Inc. is not required to provide James's address to the Commissioner.
Providers who contract directly with a person to be a member of its scheme
People who are under 18 or who are not an employee (for example, the self-employed) may opt into KiwiSaver by contracting directly with a provider. Providers who contract directly with a person to be a member of its KiwiSaver scheme must give notice to the Commissioner of that fact as soon as practicable after entering into the contract. The notice must contain the following information:
- the person's name and address;
- the person's tax file number;
- the date of the first contribution received by the provider for the person (if any);
- if the person is an employee, the name and address of each of the person's employers where deductions of contributions are to be made from salary or wages and the contribution rate in relation to each of those employers;
- the name, address and tax file number of both the provider and the scheme; and
- any other information that the Commissioner requires.
If the Commissioner receives notice from a provider that an employee has opted in, the Commissioner must, as soon as practicable, give notice to each of the person's employers to whom the opt-in notice relates stating:
- that the employer must start to make deductions of contributions from each payment of the person's salary or wages that is calculated after the date the employer receives the notice from the Commissioner;
- the contribution rate; and
- the person's name and tax file number.
| Example one |
Isabel generally works for herself but is also an employee of the local council, where she works "as and when required". Isabel contracts directly with Super Ltd, a KiwiSaver scheme provider and names the council as her employer. Super Ltd must provide the Commissioner the required information about Isabel. The Commissioner is required to inform the local council to begin making deductions of contributions from wages paid to Isabel.
Jenna is 16 years old and has two part-time jobs. She contracts directly with a KiwiSaver scheme provider and names only Employer A to have deductions of contributions from her wages. Employer A receives notice from the Commissioner to begin making deductions of contributions from Jenna's wages. The Commissioner does not receive any information from Jenna's KiwiSaver scheme provider about Employer B and does not send any notice to Employer B.
Under section 40 the Commissioner must supply information packs about KiwiSaver to employers. The Commissioner must also supply information packs to any person on request. Section 41 provides that information packs must contain the following information:
- a description of KiwiSaver;
- a statement that membership of KiwiSaver, and of any individual KiwiSaver scheme, is at the member's own risk;
- a summary of what could happen under the default allocation rules or if an employer has a chosen KiwiSaver scheme;
- a description of how to access information about KiwiSaver schemes;
- a statement that people should seek financial advice from a professional financial advisor (rather than an employer) if they want information in relation to:
- their personal financial circumstances;
- deciding whether to opt in or opt out or not;
- choosing a KiwiSaver scheme or investment product of a KiwiSaver scheme; or
- KiwiSaver or its financial concepts.
- an opt-out notice form;
- a statement about collection of personal information that complies with principle 3 in the Privacy Act 1993 (which relates to the collection of information from a subject); and
- any other prescribed information.
Section 42 requires employers to supply an information pack to employees who:
- are subject to the automatic enrolment rules (within seven days of the new employment beginning);
- opt in by giving their employer a notice that requires deductions of contributions (within seven days of the notice being given to the employer); and
- request an information pack in contemplation of opting in.
| Example one |
Mio begins a new job on 5 September 2007 and is subject to the automatic enrolment rules. Mio's employer must give her an information pack no later than 11 September 2007.
Julie tells her employer that she is thinking about joining KiwiSaver and would like an information pack. Her employer is required to give her one. This alone does not mean that Julie has joined, or is required to join, KiwiSaver.
Employers may be liable for a penalty for failure to supply an information pack. However, employers are not liable for such a penalty if the employer proves that:
- failure of the employer to supply the information pack was caused by the fact that the Commissioner had not given the employer enough information packs to enable the employer to meet its obligations; and
- the employer notified the Commissioner that it needed more information packs as soon as practicable after realising it did not have enough.
Further information on penalties that are to apply for KiwiSaver purposes is outlined below (under Part 5).
| Example one |
MA Ltd employs five new staff members and all of them are subject to automatic enrolment. MA Ltd only has four information packs left and is therefore unable to provide one of the new employees an information pack within seven days of employment beginning. Because MA Ltd notified the Commissioner that it needed more information packs as soon as realising it would not have enough, MA Ltd will not be penalised for failing to supply an information pack within the required seven-day period.
Employers who have a chosen KiwiSaver scheme
Section 43 requires that employers who have chosen a KiwiSaver scheme for their employees must also, at the time the information pack is supplied to the employee, supply:
- an investment statement for that scheme (if that choice of KiwiSaver scheme is effective); and
- a statement that, if the employee does not choose his or her own KiwiSaver scheme, the employee will be allocated to the employer's chosen KiwiSaver scheme (and not to one of the default KiwiSaver schemes by the Commissioner).
| Example one |
Stanley & Sons has chosen KAB Ltd scheme for its employees. Stanley & Sons' new staff member is subject to automatic enrolment. At the same time as an information pack is given to the new employee, an investment statement for KAB Ltd scheme must be given to the employee. The employee must also be given a statement that they will be allocated to that scheme if they do not choose their own scheme.
1 As defined in section OB 1 of the Income Tax Act.
2 As referred to in paragraphs (b)(iii), (b)(x) and (b)(xii)-(xvi) respectively in the definition of salary and wages in section OB 1 of the Income Tax Act.
3 As defined in section OB 1 of the Income Tax Act.
4 This is a requirement even if the next return due is a nil return.