KiwiSaver is here!

Changes to the proposed KiwiSaver scheme have been announced with the aim of making KiwiSaver more attractive to New Zealand employees. The changes aim to strengthen KiwiSaver and rely on a combination of employee, employer and Government contributions.

Finance Minister, Michael Cullen, announced in his 2007 Budget Speech three major KiwiSaver initiatives:

1. Employee Tax Credit: From 1 July 2007, full-time employees will qualify for a tax credit of $20 a week for their contributions. This will take the form of a dollar for dollar contribution by the Government of up to $20 per week. The credit will be paid after the end of each tax year into an employee’s KiwiSaver account.

2. Compulsory Employer Contributions: Employer contributions to match the employee’s contributions will become compulsory. This initiative will gradually be phased in. From 1 April 2008, employers will need to contribute 1% of the employee’s gross income and will, over the next three years, be required to match the minimum employee contribution level of 4% (by 2011/2012). The compulsory employer contributions will be capped at 4%. Further, all options which allow an employer contribution to count towards a minimum KiwiSaver member contribution (such as 2% employee, plus 2% employer contribution) will be phased out from 1 April 2008.

3. Employer Tax Credit: Employer contributions will qualify for a matching tax credit of up to $20 a week per employee. This tax credit will be paid directly to employers to off-set the costs of these initiatives. The first $500 a week of each employee’s wage or salary will not incur a net cost in relation to the KiwiSaver employer contribution for that employee. In 2008/2009, the employer’s contribution costs on the first $2,000 a week of employee income will be met and in 2009/2010 on the first $1,000 a week. The net additional costs to employers by 2011/2012 should overall be no more than around 1% of the national wage and salary bill.

What does this mean for Employers?

• The compulsory employer contributions may be taken into account in wage and salary bargaining. This is a factor in EPMU’s current campaign.
• Employers need to be ready for 1 April 2008, when the compulsory employer contribution commences.
• From 1 April 2008, employers will need to contribute 1% of an employee’s wages to the employee’s KiwiSaver account.
• Over the next 3 years the employer contributions will be raised to reach a total of 4% compulsory contribution to each employee’s KiwiSaver account.

Example

An employee on a full-time average wage in 2011 will save about $40 a week with KiwiSaver. With Government and employer contributions added, about $100 a week will go into their KiwiSaver account (approximately $5,200 a year). The net cost to the employer would be nothing in the first 2 years and $20 per week by the fourth year.

The Government suggests that these initiatives will create a greater sense of employee loyalty and may be an incentive to employees to stay in New Zealand. By providing tax credits to both employers and employees the Government will be contributing $40 a week to those earning $500 a week or more and matching the costs of KiwiSaver contributions for those earning less than $500 a week.

These changes are likely to make KiwiSaver a more attractive option to employees. If you have any questions on KiwiSaver, please do not hesitate to contact us.

For more information, please contact:

Erin Davies
Partner
t: +64 9 979 2177
m: +64 29 622 2300
e: Erin Davies

Last updated: 20 October 2008

This article is intended to be brief in nature and should be used for information only. It should not be relied on as legal advice.