Interest paid by Inland Revenue
2012 change to the KiwiSaver Act enables the CIR to pay interest due on employee and employer contributions while they are in the KiwiSaver holding account.
Section 88 of the KiwiSaver Act 2006
A change has been made to the KiwiSaver Act 2006 to enable the Commissioner of Inland Revenue to consolidate and pay interest due on employee and employer contributions for the period they are in the KiwiSaver holding account, on a periodic basis.
Inland Revenue may consolidate interest due on employee and employer contributions for the period these contributions are in the KiwiSaver holding account, and credit it to members on a periodic basis.
The maximum period over which interest may be consolidated is three months although Inland Revenue envisages that a monthly consolidation period will be used.
The Commissioner has established the Inland Revenue KiwiSaver Holding Account into which employee and employer contributions are received before being passed on to the provider. The Commissioner pays interest on contributions that are held in this account, until they are forwarded to the member's KiwiSaver scheme.
For the purposes of computing the interest due, employee contributions are treated as received into the account on the 15th day of the month in which the deduction is made by the employer. Employer contributions are treated as received on the first day of the month in which the money is actually received by Inland Revenue.
At present, interest must be credited to the member's account and then on-paid to their provider at the same time the employee or employer contribution is on-paid. This approach can create lots of small regular credits, many for a few cents, leading to a large volume of low-value transactions and entries on members' statements.
This change will enable Inland Revenue to consolidate interest payments on employee and employer contributions and make a single credit to a member on a periodic basis.
There is no change to the method of calculation of interest due; this will still be computed on a daily basis.
The legislation provides that the maximum period over which interest may be consolidated is three months. However, following consultation with KiwiSaver providers, Inland Revenue intends to use a monthly consolidation period.
The amendment applies from the date of Royal assent, being 2 November 2012.
It will take a short period following enactment for Inland Revenue to make the necessary technical changes in order to credit interest on a periodic basis.