Why do we need it?
We have been hearing for several years that New Zealand is a “spend now” society and for most people our only retirement savings are our homes. All our long term savings are in our homes and we hope that we are able to sell up in retirement, purchase a smaller home and then spend the money we have left over.
Few of us consider that we will be selling and buying in the same market so we will need all our money to buy a new home and we also believe that when we retire the property market will still be buoyant.
In Australia there has been compulsory savings for retirement for a number of years. In the 1970s the then Labour Government had a compulsory retirement scheme set up but then the National Government repealed the legislation.
The real reason for Kiwi saver is that the number of people who will be entering retirement is set to grow to over 25% of the population. By 2050 over 8% of GDP will be spent on National Superannuation as compared to around 4% now. That is to say, it is going to cost New Zealand taxpayers a lot of money.
What is it?
In brief:
- It is a work based savings scheme.
- It is not compulsory for any workers.
- Employees who start a new job from 1 July 2007 will be automatically enrolled unless they opt out of Kiwisaver between weeks 2 and 8 after starting the new job.
- Existing employees are able to opt into Kiwisaver if they choose to do so.
- Savings are locked until the age of eligibility to National Superannuation (currently 65).
- Employee contributions are either 4.00% or 8.00% of an employees gross earnings.
- Withdrawals are only allowed under certain circumstances such as death, financial hardship, serious illness, emigration from New Zealand.
- The government will put $1,000 into each new Kiwisaver account.
- The government will pay $40.00 per annum to help pay for the annual fund management fees.
- Employees need to choose a fund manager or the IRD will select one of the default fund managers for the employee.
When will it Start?
Kiwisaver is set to start from 1 July 2007 with additional changes coming into force from 1 April 2008.
Employees who start a new job after 1 April 2007 will be required to be automatically enrolled and will stay enrolled unless they opt out between weeks 2 and 8 of their new employment.
Employees in existing jobs on the 1 April 2007 may opt in if they choose but will not be automatically enrolled.
The major announcement in the budget which will affect Kiwisaver from 1 April 2008 is that employers will be required to provide a contribution to an employees Kiwisaver account as follows:
(% of gross salary ‘a’) Employee contribution
(% of gross salary ‘b’) employer contribution
% of gross salary ‘c’) Total employee and employer contributions
|
Date |
‘a’ |
‘b’ |
‘c’ |
|
1 April 2008 |
4% |
1% |
5% |
|
1 April 2009 |
4% |
2% |
6% |
|
1 April 2010 |
4% |
3% |
7% |
|
1 April 2011 |
4% |
4% |
8% |
Therefore, on the 1 April 2011, employers will be required to contribute a minimum of 4% of employee’s gross earnings to the employees Kiwisaver account. This will have an impact on employment.
Employers will need to start to consider the total remuneration package being offered for a position. Questions such as “What is the job worth?”, “What is the total remuneration that we want to pay for the position on offer?” need to be considered so that if a job is worth $50,000 and the employer is being required to pay 4% of a salary to a Kiwisaver account then the cash salary that will be paid will then be around $48,000. The package will still be $50,000, salary of $48,000 and Kiwisaver contributions of $2,000.
Why is this important? Consider two employees who do the same work for the same employer. The year is 2011 and both employees are on a $50,000 salary. One employee opts into Kiwisaver and the employer is required to contribute 4% to the Kiwisaver account. This 4% is worth $2,000 to the employee and therefore the total package for this employee is now $52,000 rather than $50,000.
How does it affect Lay Workers?
How Kiwisaver will affect lay workers will depend on ‘where they are’ in their life and what other commitments they have.
One of the first questions that need to be asked is, “Can I meet my day to day financial commitments if I go into Kiwisaver?” For example, if you $18.00 per hour, work 40 hours per week, get paid fortnight and have an M tax code, this is the before and after situation:
|
|
Before Kiwisaver |
After Kiwisaver |
|
Gross Earnings |
$1,440.00 |
$1,440.00 |
|
PAYE |
$229.18 |
$229.18 |
|
Kiwisaver |
- |
$57.60 |
|
Net pay |
$1,210.82 |
$1,153.22 |
|
Kiwisaver as a % of Gross Pay |
|
4.00% |
|
Kiwisaver as a % of Net Pay |
|
4.99% |
What this is saying, is that even though Kiwisaver contributions are at 4% of gross earnings, it will mean that your net take home pay will reduce by 4.99%.
If you decide NOT to join Kiwisaver, what will you miss out on?
- You will not get the $1,000 kick start contributions.
- You will not get the government dollar for dollar contribution up to a maximum of $1,040 per year.
- $40.00 contribution to your membership fee per year
- You will not be eligible for a new home subsidy after three years of being in the scheme.
- You will not be entitled to the employer’s contributions when they start in April 2008.
How does it affect Presbyters?
Currently the Supernumerary Trustees have not sought to apply to have the Supernumerary Fund made Kiwisaver compliant. To do this would mean altering the Fund significantly and the loss of benefits within the current scheme. One of the major differences between the Methodist Fund and Kiwisaver is that under KiwiSaver funds are locked in until the age of eligibility for New Zealand Superannuation which is currently 65 but may rise.
However now that the employer contribution to Kiwisaver has become compulsory from 1 April 2008 we will seek to have the existing Church contributions into the Church scheme count towards the KiwiSaver contributions. This will be able to done under proposed changes announced in the budget that are contained in The Taxation (Annual rates, Business taxation, Kiwisaver, and Remedial matters) Bill currently before Parliament. The effect of this is that any Presbyter who chooses could join Kiwisaver as well as the Church scheme and then have the existing 10% Church contribution to the Methodist scheme counted as the employer’s contribution to the Kiwisaver account.
The reason for seeking the exemption is that the current 10% employer contribution is written into the Methodist Superannuation Deed and could not be split between the Methodist Scheme and KiwiSaver without a Deed change which would require 100% of all members as it would affect the benefits of all members.
The Trustee is conscious that future superannuation options will need to be considered carefully, including a new Presbyters right to opt into KiwiSaver in addition to the Church scheme and still be in Full Connexion.
The Connexional Office is seeking advice on KiwiSaver and the Church Fund as well as other external superannuation funds in an effort to maximise the retirement benefits of Presbyters and will ensure that all information is gathered before bringing to the Church any suggested decisions that will affect presbyters retirement.
