KiwiSaver

1. KiwiSaver With DLA Phillips Fox partners and KiwiSaver specialists Alasdair McBeth and Tracey Cross

2. Structure • Overview of KiwiSaver • Who is effected by KiwiSaver • How will KiwiSaver work • Benefits of KiwiSaver • Employer obligations • Employer contributions • Tax • Employer options • What happens to existing employer schemes • Checklist

3. Overview • KiwiSaver Act 2006 received royal assent on 6 September 2006. • The purpose of the new regime is to encourage long-term savings, principally for retirement. • It is the platform upon which superannuation and retirement savings will be built for generations to come. • IRD contract administrator. • December 2006 tax changes and 2007 Budget announcements mean that there is less clarity about the new savings regime.

4. Who is effected by KiwiSaver? • Every employer in New Zealand is affected by the Act. • Not compulsory. • To be eligible to join you must be: • a New Zealand citizen or entitled to live in New Zealand indefinitely; and • personally present or normally present in New Zealand; and • under the age of eligibility for NZ Super.

5. Automatic enrolment • Every person between 18 and the age of entitlement to New Zealand Superannuation (65) who STARTS NEW EMPLOYMENT with an employer that is not an exempt employer.

6. Automatic enrolment Exceptions • Temporary employee. • Election day worker. • Private domestic worker. • Employee who is not required to make tax deductions from salary or wages: • Parental leave. • ACC. • Working partners. • Change in job but remains on same payroll. • Change resulting from amalgamation/sale/takeover. • Already KiwiSaver member. • Temporarily absent from New Zealand in service of Government. • PROPOSED – fixed term contracts for less than 12 months.

7. KiwiSaver scheme choice Order of progression: • Employee may choose scheme they wish to join  contract directly with provider. • If employee does not choose a scheme  automatically join any scheme chosen by employer. • If neither 1 or 2 applies  allocated to scheme provided by a default provider.  selected by IRD.  near fixed interest fund.

8. Payment obligations • 4% or 8% • Paid to Inland Revenue by employer • Can change between rates • Applies to each pay • Includes bonuses/overtime • Compulsory employer obligations not yet required

9. Automatic enrolment Opt out • Employee can give opt out notice to Employer or IRD • Must be done between weeks 2 and 8. NOTE – there will be deduction on first pay day if paid days are fortnightly/monthly.

10. Opting in • Anyone can opt in. • Must be less than age of entitlement to New Zealand Super (65). • Two options: • Contract direct with KiwiSaver Scheme provider • Give his/her employer KiwiSaver deduction notice. • Person under 18 may contract directly with provider.

11. Contribution holiday • Members can take contribution holiday after first 12 months of contributions. • Minimum period 3 months. • Maximum period 5 years.

12. Permitted withdrawals • Contributions are locked into the age of entitlement to NZ super or 5 years membership whichever is the later • Permitted withdrawals: • first home • significant financial hardship • serious illness • emigration • death • Mortgage diversion

13. Benefits of KiwiSaver • $1,000 • $40 fee subsidy • Member tax credit up to $1040 • SSCWT exemption on certain employer contributions (employees only) • Members will hopefully have money in retirement • Mortgage diversion • First home withdrawal • First home deposit subsidy • Compulsory employer contributions

14. Employer Obligations Automatic Enrolment Supply of Information From employee: • As soon as practicable after commencement of employment: • His/her name. • His/her tax file number. • Whether already member of KiwiSaver scheme: • Provide employer with KiwiSaver deduction notice; or • Copy of IRD contributions holiday notice.

15. Employer Obligations Automatic Enrolment Supply of Information From employer: • If employer satisfied new employee subject to automatic enrolment provisions: • Notice to IRD of employee information. • Provide information pack to new employee. • If employer has chosen scheme: • Investment Statement. • Statement that if employee does not choose his or her own scheme the employee will be allocated to the employer’s chosen scheme.

16. Employer Obligations Automatic Enrolment Information Pack: • Description of Scheme • Statement that membership of overall Scheme and of any KiwiSaver Scheme is at new employees own risk • Summary of default allocation rules or if Employer has chosen scheme • How to access information • Statement employee should seek financial advice from professional advisor if need information • Opt out notice • Statement about collection of personal information that complies with Privacy Act • Other prescribed information

17. Employer Obligations Obligation 1 • Determine whether new employee subject to automatic enrolment provisions Obligation 2 • Provide information to IRD Obligation 3 • Give information to Employee

18. Payment Obligations • Commence making deductions of contributions on first pay day • 4% of salary and wages unless employee elects 8% • Monthly schedule to IRD • PAYE

19. Employer Obligations Obligation 4 • Deduct contributions and pay to IRD

20. Employer Obligations Automatic Enrolment Opt out • Employee can give opt out notice to Employer or IRD • IRD must tell Employer and vice versa • IRD pays contribution to employee • Employer stops deductions

21. Employer Obligations Obligation 5 • Give notice of opt out to IRD • Stop deducting contributions

22. Automatic Enrolment - Timeline Employer gives IRD information of new employee no later than next monthly schedule date New Employee Last date for Employee to select own scheme Employer gives information to Employee Opt out period 8 weeks 14 days 0 3 months 7 days 2 months 1 month First pay day - deductions of contributions commence Automatically enrolled in Employer chosen scheme or default scheme Employee gives information to Employer IRD transfers money to provider

23. Opting In • Existing employees may opt in. • Partners/self employed may opt in. • Two options: • Contract direct with KiwiSaver Scheme provider • Give his/her employer KiwiSaver deduction notice.

24. Opting In (continued) • If deduction notice given to employer, employee must provide: • His/her name and address • His/her tax file number

25. Opting In (continued) • Following receipt of deduction notice, employer must do certain things: • Give information: • IRD information pack • Investment statement for employer chosen scheme (if any) • Statement that if employee doesn’t chose scheme employee will be allocated to employer chosen scheme • Commence deduction from date employer receives either: • Deduction notice from employee • Notice from IRD that employee has opted in by contracting with a provider • If employer satisfied entitled: • Notice to IRD • No later than date of next monthly schedule date

26. Employer Obligations Obligation 6 • Act on opt in notice

27. Contribution Holiday • Application made to IRD. • IRD gives notice to Employer that holiday granted. • Employer must stop deductions. • IRD notifies Employer when holiday ends. • Employee recommences deductions from date receives notice.

28. Employer Obligations Obligation 7 • Act on contribution holiday notices

29. Act on Rate Change Notice • Employees can freely change rate • 3 monthly intervals • Salary deduction notice

30. Employer Obligations Obligation 8 • Act on rate change notices

31. Compulsory Employer Contributions • Only bill • November • Obligation to contribute if employee is: • Member of KiwiSaver scheme or complying fund and employer required to deduct contributions from salary or wages • Over 18 • Under 65 • Phased in over 4 years • 1 April 2008 – 1% • 1 April 2009 – 2% • 1 April 2010 – 3% • 1 April 2011 – 4%

32. Compulsory Employer Contributions (continued) • Contribution amount takes account of contribution to existing schemes if: • Employee is employed before 1 April 2008 • Employer provides access to scheme before 17 May 2007 • Employer agreed to make contributions before 1 April 2008 • Immediate vesting • Contribution must be paid via IRD: • Note requirement for existing payments • Remittance certificate • Include in monthly schedule • Matching tax credit: • Maximum of $20 per week • Paid through PAYE system

33. Employer Obligations Obligation 9 • Pay compulsory employer contribution • Calculate employer tax credits

34. Consumer protection legislation • Fair Trading Act • Consumer Guarantees Act • Securities Act • Investment Advisers (Disclosure) Act • Privacy Act

35. Obligation 10 • Comply with consumer protection laws

36. Options for employers • Do nothing • Exempt employer • Choose a KiwiSaver scheme • Set up KiwiSaver scheme • Design scheme through Master Trust

37. SSCWT • Removal for KiwiSaver Schemes • Removal for Complying Schemes • Election to use lower rates

39. Tax credits • Employer Tax Credit = $20 per week per employee (or lesser amount of contributions to KiwiSaver or complying schemes), offsets PAYE liabilities (including KiwiSaver contributions) • Employee Tax Credit = $20 per week (or lesser amount of actual contribution) credited to member’s account in KiwiSaver or complying scheme

40. Employer deductions • All superannuation contributions were deductible • Amounts that receive the employer tax credit (i.e. $20 per week per employee) are no longer deductible

41. Salary sacrifices • Amendments were made in 2006 restricting excessive salary sacrifices • The SSCWT thresholds are now based on salary/wages and superannuation contributions • Issues Paper accepted that “some degree of salary sacrifice can form part of usual employment arrangements”

42. About Employers "If they want to attract and retain good staff there is real value in them improving wage levels, investing in child care and offering greater flexibility around work hours. Employers know how the market works and clearly when it is tight they need to have a margin in their advantage." David Benson Pope, 2005

43. Good faith • Good faith conduct underpins employment relationship • Personal grievance remedies will be available • Common law obligations will also apply

44. Contractual issues • Free to discuss with employees • If on collective, any separate agreement to be consistent with CEA • All agreements must be reduced to writing

45. Collective bargaining • Will be an agenda item • Negotiations governed by ERA prescription • Employers need a pro‑active, considered negotiation strategy

46. Obligation 11 • Comply with employment law obligations

47. Existing superannuation arrangements • Do nothing • Complying fund • Wind up/transfer • Conversion • Bolt on/umbrella • Exempt employer

48. Employer Obligations • Determine whether new employee subject to automatic enrolment provisions • Provide information to IRD. • Give information to employee. • Deduct contributions and pay to IRD. • Give notice to opt out to IRD. Stop deducting contributions. • Act on opt in notice. • Act on contribution holiday notices. • Act on rate change notices. • Pay compulsory employer contributions. Calculate employer tax credit. • Comply with consumer protection laws. • Comply with employment law obligations.

49. Checklist for Employers • Keep stock of information packs • Will you take an active or passive approach? • Will you chose a KiwiSaver provider • If you do: • Keep stock of investment statement • Get the provider to assist in process • Consumer protection law compliance • Access to financial adviser • Develop compliance checklist and processes • Assign responsibility • Employment law compliance • Who will answer questions? How will questions be answered? • Good communication • Employer contributions • Understand fiscal effect • Understand employment contracts • Existing schemes.

50. Sarah (45) Senior Accounts Clerk is an existing employee earning $50,000 per annum