Trans-Tasman portability of retirement savings

The KiwiSaver Act 2006 and the Income Tax Act 2007 have been amended to give effect to trans-Tasman portability of retirement savings. The portability arrangements will allow a person who has retirement savings in both Australia and New Zealand to consolidate them in one account in their current country of residence.

New Zealand and Australia need to exchange notes informing each other that the necessary legislation has been enacted before this facility can be utilised. The Australian legislation is expected to be enacted by next year. References below to "under Australian law" refer to the legislation that is expected to be enacted at that time.

Background

Retirement savings were unable to be transferred between Australia and New Zealand if a person resident in one permanently emigrated to the other.

The retirement savings portability arrangements were developed to improve the portability of retirement savings and remove an impediment to labour movement between New Zealand and Australia.

Key features

• Participation is voluntary for KiwiSaver members and scheme providers.
• Retirement savings may only be transferred between a KiwiSaver scheme and an Australian complying superannuation scheme regulated by the Australian Prudential Regulation Authority.
• A KiwiSaver member must permanently emigrate to Australia to be able to transfer their retirement savings.
• Any member tax credits and the $1,000 kick-start payment may be transferred to Australia.
• A KiwiSaver member will not be able to withdraw any retirement savings in cash upon permanent emigration to Australia, as can be done one year after the person emigrates to a country other than Australia.
• An amount of Australian-sourced retirement savings transferred to a KiwiSaver scheme under the portability arrangements will be treated as exempt from tax at the point of entry.
• Australian-sourced retirement savings will be subject to Australian complying scheme rules, including a minimum retirement age of 60. These savings will also not be able to be withdrawn to purchase a first home.

Detailed analysis

New rules for permanent emigration to Australia

A KiwiSaver member can transfer their retirement savings from their participating KiwiSaver scheme to an Australian complying superannuation scheme regulated by the Australian Prudential Regulation Authority. Members can request the transfer of their savings at any time after they supply their provider with proof of their permanent emigration to Australia. The requirements for proof of permanent emigration to Australia will be the same as those contained in clause 14(3), schedule 1 of the KiwiSaver Act 2006.

KiwiSaver members transferring their retirement savings to Australia will also be able to transfer accumulated member tax credits and the $1,000 kick-start contribution. At present if a member withdraws their savings following permanent emigration from New Zealand they lose their member tax credits, as these are recovered by the Crown. That remains the position for permanent emigration to anywhere other than Australia.

The portability arrangements will apply only to transfers of retirement savings between New Zealand KiwiSaver schemes and Australian complying superannuation schemes. Members of complying superannuation schemes in New Zealand will not be eligible for the portability arrangements, but are covered by the existing rules for permanent emigration in clause 14.

The portability arrangements will be the only way for KiwiSaver members to take their accumulated savings with them when they permanently emigrate to Australia. Consequently, KiwiSaver members who emigrate to Australia will not be able to withdraw their accumulated savings in cash. This reflects the policy intent of KiwiSaver, which is to encourage a long-term savings habit and asset accumulation. The transfer is optional and members can choose to leave their funds in KiwiSaver. If members chose to leave their funds in KiwiSaver while residing in Australia, they will not be eligible to accumulate member tax credits.

Under Australian law, retirement savings transferred from KiwiSaver to Australia will remain locked in until the member reaches the age of entitlement to New Zealand Superannuation (currently 65).

Under Australian law, any New Zealand-sourced retirement savings that are transferred to Australia will not be able to be transferred from Australia to a third country.

Permanent emigration to countries other than Australia

For KiwiSaver members who permanently emigrate to a country other than Australia, the current rules in clause 14, schedule 1 of the KiwiSaver Act will continue to apply. These members may withdraw their accumulated savings in cash one year after their permanent emigration, except that the amount withdrawn will be reduced by the amount of Australian-sourced retirement savings (as well as any member tax credits), as provided by clause 14(1) and (2), schedule 1.

Differences for Australian-sourced retirement savings

Source-country rules

Differences between the Australian and New Zealand superannuation schemes mean that transferred savings will remain subject to a number of source-country rules. These rules will apply only to the principal amount of savings that are transferred from the original source country to the host country. Once transferred, earnings on those savings and any subsequent contributions will be subject to the rules of the host country.

Age of retirement

KiwiSaver members can completely withdraw their retirement savings on the later of five years of membership or on reaching the age of entitlement to New Zealand Superannuation (currently 65). Despite this, new clause 4B, schedule 1 will allow Australian-sourced retirement savings which are held in KiwiSaver to be withdrawn at age 60 if the member is retired.

The current Australian definition of retirement as defined in regulation 6.01(7) of the Superannuation Industry (Supervision) Regulations 1994 (Aust) is:

• The retirement of a person is taken to occur:

1. in the case of a person who has reached a preservation age that is less than 60 - if:
   1. an arrangement under which the member was gainfully employed has come to an end; and
   2. the trustee is reasonably satisfied that the person intends never to again become gainfully employed, either on a full time or a part time basis; or
2. in the case of a person who has attained the age of 60 - an arrangement under which the member was gainfully employed has come to an end, and either of the following circumstances apply:
   1. the person attained that age on or before the ending of the employment; or
   2. the trustee is reasonably satisfied that the person intends never to again become gainfully employed, either on a full time or a part time basis.

Member tax credits

To be eligible for member tax credits, members must reside mainly in New Zealand in the year for which the tax credit applies. As Australian-sourced savings relate to contributions made while the member was not residing in New Zealand, member tax credits will not be paid on such savings after they are transferred to KiwiSaver.

KiwiSaver housing-related initiatives

Australian-sourced savings held in KiwiSaver will not be able to be used for any of the KiwiSaver housing-related initiatives. The arrangement between the two countries prescribes that transferred savings cannot be withdrawn to assist with the purchase of a first home. However, any earnings on Australian-sourced savings may be withdrawn for the purchase of a first home.

Membership invalidation

If a person's membership in KiwiSaver is invalidated after retirement savings are transferred from Australia to New Zealand, the principal value of any such savings will be returned to the member's Australian superannuation account.

In the rare situation where KiwiSaver account amounts must be transferred back to the original Australian complying scheme because the KiwiSaver enrolment is deemed invalid, an individual can nominate another superannuation scheme in Australia if their original scheme will not accept a transfer, or the scheme no longer exists. Once membership has been accepted by the Australian scheme, the KiwiSaver scheme provider will transfer the funds. These cases would most likely occur for those over 65, or non-New Zealand residents who have been invalidly enrolled in KiwiSaver; Inland Revenue expects the instances of this to be low.

Tax treatment of transfers

One of the principles of the portability arrangements is that transferring retirement savings across the Tasman should not lead to an unnecessary loss in value of those savings. To protect the value of retirement savings, such transfers between New Zealand and Australia will be exempt from entry or exit taxes.

Australia's excess non-concessional contributions tax

Transfers from KiwiSaver to an Australian superannuation scheme will be subject to the non-concessional contributions cap on initial entry into the Australian system. Australia imposes a tax-free limit (a "non-concessional contributions cap") of A$150,000 on the amount of superannuation contributions that an individual can make from non-wage sources in a particular year. Contributions that exceed this cap are taxed at a rate of 46.5 percent. This is intended to maintain the integrity of the Australian superannuation system. The cap will not apply to New Zealand-sourced or Australian-sourced superannuation contributions re-entering Australia.

Application date

The portability arrangements will come into effect up to two months after New Zealand and Australia have exchanged notes informing each other that the necessary legislation has been enacted.