KiwiSaver News

We have put together the attached bulletin setting out why we think our SuperEasy KiwiSaver Scheme is made for KiwiSaver.

There has been a lot of recent media coverage highlighting the fact that all new KiwiSaver members who join through the automatic enrolment process, irrespective of age have their funds invested in a conservative low-risk investment fund. The consensus of opinion is that these new members should be invested in a fund that reflects their age at the time they join KiwiSaver. Much debate and discussion has taken place on this topic since KiwiSaver was introduced in July 2007 without an ideal solution yet being available to all new KiwiSaver members.

That is apart from our Local Government family (and their immediate family) who can join our SuperEasy KiwiSaver Scheme. Our Automatic Fund solves this dilemma, and as far as we are aware the facility the Automatic Fund brings does not exist in any other KiwiSaver Scheme in New Zealand. Not only has our Automatic Fund been designed to specifically address this problem, we have set up our Automatic Fund as our KiwiSaver default fund, which has been in place since the inception of KiwiSaver in July 2007. This means that any new member who joins our SuperEasy KiwiSaver Scheme through the automatic enrolment process will have their funds invested in the Automatic Fund.

As a learned colleague of mine once said “If we wish to have a substantial lifestyle in retirement then we have to save a substantial amount away during our working life.” Please feel free to share this information with your staff members or post it on your intranet or website as you consider appropriate.

If someone ever asks you why they need to save for their retirement you could always share the following information with them.

If you are a “centenarian” you are a person who is at least 100 years old – and you think good for them that won’t be me, well think again!

A recent study in the UK shows the number of centenarians has increased to 12,640, five times more than 30 years ago when the figure was 2,500. The major contribution to the rising number of centenarians is increased survival between the age of 80 and 100 due to improved medical treatment, housing and living standards, and nutrition during their lifetime. Why would we think this will be any different in New Zealand.

As the number of people living to 100 in the UK continues to reach record highs, so does life expectancy for both males and females. Females continue to live longer than males, but the gap has been closing. A newborn baby boy could expect to live 78.1 years and a newborn baby girl 82.1 years if mortality rates continue to remain the same.

In 2000 there were approximately nine female centenarians for every male centenarian. By 2010 this had reduced to five. The falls in the ratios of women to men at older ages are mainly due to recent improvements in male mortality. Since 2000 the estimated number of male centenarians has more than doubled from 700 to 1,700 in 2009, while the number of female centenarians increased by 62% from 6,100 to 9,900.

Check this out!

• 0.6% of the people born in the UK in 1911 have survived to age 100
• Of those born in the UK in 2011, 30% are expected to survive to 2111
• Probability of a female in the UK aged 40 today of reaching 100 is 20%
• Probability of a female in the UK aged 50 today of reaching 100 is 17%
• Projected number for 2050 is 276,000
• Projected number for 2066 is 510,000.

Who will be looking after them?

“So like it or not we will be living a long time in retirement and we will need something to live on so the more we can save the better!”

As expected Labour has responded to National’s recent policy announcement on KiwiSaver. The Labour Party is proposing to make KiwiSaver compulsory from 2014, for employees aged between 18 to 65, if it wins November’s general election. The pledge, along with promises to raise the New Zealand Superannuation eligibility age from 65 to 67, and restart Government’s contribution to the New Zealand Superannuation Fund, are outlined in Labour’s savings policy. The policy documents can be downloaded from www.labour.org.nz.

In addition to making KiwiSaver compulsory, Labour is proposing to:

• Increase the employer contribution rate from 3 percent to 7 percent (with contributions increasing by 0.5 percent each year over nine years, from 2015).
• Keep the employee contribution at 2 percent (under the National Government this will rise to 3 percent from 1 April 2013)
• Spread the $1000 KiwiSaver kick-start payment over five years to manage the fiscal cost of the proposal (the $521 annual member tax credit will be unaffected)

Labour estimates that its KiwiSaver policy will cost around $370 million in 2014 (before falling to a “steady state” of around $200 million by 2020); will bring in 730,000 new KiwiSaver members; and reduce New Zealand’s net indebtedness by around 8 percent after the first 10 years (and 17 percent after 20 years).

Agree with them or not, Labour’s announcements have put two important areas of New Zealand’s savings and superannuation framework into the election spotlight. These are issues that not only need to be debated but hopefully will also be concluded. Now wouldn’t that be nice!

To save or not to save that is the question: As widely expected, National is promising to enrol everyone not already signed up to KiwiSaver into the scheme. People would then have the option of opting out, within a certain period of time.

It won’t happen tomorrow, as the promise is hedged with caveats: the most important being that enrolment would only happen if the government’s books were back on track to return to surplus. However, at this stage their comments support the continuation of the $1000 “kick-start” and the annual Member Tax Credit payment of up to $521 – Good!

This is not an insignificant stance. Depending on the uptake and design, officials estimate a KiwiSaver auto-enrolment could cost the government up to $550 million over four years,” Finance Minister Bill English said when announcing the policy. This assumes 55% of those who auto-enrol – 275,000 people – stay in the scheme; at present there about 1.8 million KiwiSaver members.

National has ruled out compulsion on the grounds people should still have the choice to save in other ways if they wish to. Labour has yet to announce its savings policy but is examining full-blown compulsory savings. Watch this space!

Prior to the budget announcement on 19 May the Prime Minister noted that KiwiSaver was “affordable in the sunshine” but signalled that with the heavy rain that we are currently experiencing, changes would need to be made to ensure KiwiSaver has a sustainable future. So what did the budget announcement unfold?

From 1 July 2011: the Member Tax Credit (MTC) will be halved to $10 per week to a maximum of $521 per annum. Another way of describing this is that the Government will subsidise us at a rate of $0.50 cents for each dollar we pay in up to a maximum of $521 each KiwiSaver year. NB It is only our own personal contributions that qualify towards our MTC; employer contributions do not count towards our MTC entitlement. So this means that we will have to personally contribute at least $1042 each KiwiSaver year (1 July to 30 June of each year) to receive the full $521 MTC from the Government.

From 1 April 2012: The tax free status of employer contributions will be removed. All employer contributions will be subject to Employer Superannuation Contribution Tax (ESCT) at the employee’s marginal tax rate.

From 1 April 2013: The minimum employee and employer contributions will rise from 2% to 3%

So how does this all pan out for new and existing KiwiSaver members?

“Let’s say you are a salaried employee earning $50,000 per annum and you are making your KiwiSaver payments via deductions from your pay.”

The Financial Markets Authority (FMA) was established as an independent crown entity on 1 May 2011? The FMA has taken over all or some of the regulatory functions of the:

• Securities Commission (market conduct regulator)
• Government Actuary (superannuation and KiwiSaver Schemes regulator)
• Ministry of Economic Development (prospectus review and enforcement of governance laws applicable to financial markets participants)

On the back of this Civic Assurance has now registered its SuperEasy KiwiSaver Superannuation Scheme under the KiwiSaver Amendment Act 2011 as a restricted scheme, thereby restricting membership to those people (and including their immediate family) that work within the Local Government sector in New Zealand.

As far as we are aware our SuperEasy KiwiSaver Superannuation Scheme is the only KiwiSaver scheme that is registered under the KiwiSaver Amendment Act 2011 restricting membership to those that work within the Local Government sector in New Zealand.

Civic Assurance is owned by 67 local authorities and exists solely to serve Local Government in New Zealand. As such our brief is therefore to provide the best superannuation scheme we can for our Local Government Family, at the most competitive price that is supportable and sustainable – we are not seeking at your expense to maximise our profit.

For a detailed explanation of the entry criteria to the SuperEasy KiwiSaver Superannuation Scheme please click here

I have put together the attached bulletin setting out what I consider to be essential ingredients when looking at any KiwiSaver or Superannuation scheme. I have compiled this from my own experience and having presented to thousands of Local Government staff over the last several years. This is by no means the absolute and complete list, however it does list a few points that I consider to be essential when looking at any KiwiSaver or Superannuation scheme.

I hope you find this helpful.

As announced in the May Budget all members of our SuperEasy and SuperEasy KiwiSaver Scheme will pay less tax on their investment earnings from 1 October 2010.

What are the new Prescribed Investor Rates? From 1 October 2010 you have the choice of selecting from three options; you can select a Prescribed Investor Rate (PIR) of 28%, 17.5% or 10.5%; previously you could select a rate of 30%, 21% or 12.5%.

What is your Prescribed Investor Rate (PIR)? Your PIR is the rate of tax that is charged on your investment earnings (your PIE income) in our SuperEasy KiwiSaver Superannuation Scheme and SuperEasy Scheme. Depending on the level of your taxable income you can have your earnings taxed at 28%, 17.5% or 10.5%. The less tax paid on your earnings means there will be more in your account balance so it is important you let us know we have your correct PIR recorded against your name.

How do you determine your PIR rate?
(this applies to taxable and PIE income in either of the previous two income years ending 31 March)

What do you need to do? From 1 October 2010, those existing members on a rate of 30%, 21.5% or 12.5% will automatically be transferred to a rate of 28%, 17.5% or 10.5% respectively. So unless you feel you are currently not on the correct rate there is nothing for you to do as we will automatically transfer you to the new rate as described above.

From 1 July, two KiwiSaver features will be available to help New Zealanders achieve their dream of home ownership.

Members of a KiwiSaver scheme, a complying superannuation scheme or an exempt employer scheme will be able to apply for the KiwiSaver first-home deposit subsidy and the KiwiSaver first-home withdrawal to buy their first home.

The first-home deposit subsidy

After three years of contributing to KiwiSaver, you may be entitled to a deposit subsidy.

The deposit subsidy pays $1,000 for each year of regular contribution to a KiwiSaver scheme, complying scheme, or exempt employer scheme, to a maximum of $5,000. It can also be used to buy land to build a home.

Housing New Zealand administers the deposit subsidy and will make payments directly to solicitors settling the purchase. If the sale of the house fails to settle, any deposit subsidy payments made to a solicitor will need to be returned to Housing New Zealand.

KiwiSaver members need to meet criteria in order to qualify. This includes criteria around income, house prices, and level of contribution to a KiwiSaver scheme or a complying superannuation scheme. Housing New Zealand also need to see the sale and purchase agreement as part of its eligibility assessment.

For more information about the eligibility criteria and the application process visit: www.hnzc.co.nz/kiwisaver

The first-home withdrawal

After three years of membership, members of a KiwiSaver scheme or complying scheme, can withdraw their savings (but not government kick start or tax credits) from their scheme to help purchase their first home.

KiwiSaver members need to contact their KiwiSaver scheme provider or complying fund provider directly. They will process the application and pay solicitors settling property purchases.

Funds will have to be returned to scheme accounts should a property purchase not be completed.

Previous home owners

Previous home owners can also qualify for both the deposit subsidy and the first-home withdrawal, provided Housing New Zealand determines they are in the same financial position as a first home buyer.

More information

If you have any questions about the deposit subsidy, please contact Housing New Zealand on 0508 935 266, or email kiwisaver.firsthome@hnzc.co.nz

Detailed information about the first home deposit subsidy is available on Housing New Zealand’s website: www.hnzc.co.nz/kiwisaver

This is to let you know you can keep track of your KiwiSaver payments that have been paid to the IRD. The IRD have set up a facility on the front page of their KiwiSaver website www.kiwisaver.govt.nz via Manage My KiwiSaver which is a web-based service that lets you view your KiwiSaver account any time day or night. The service is secure, easy to use – and you don’t have to wait in a queue!

If you’re an employee and a member of KiwiSaver, you may have noticed that it can take time for your payments to reach your scheme provider. That’s because your employer sends through your payments to the IRD for checking before they are passed through to your scheme provider by the IRD. So there will always be a slight difference at any given time, between what the IRD and your scheme provider has received.

I have set this up for my own KiwiSaver and find this very helpful and would encourage every member to do the same.

To find out how you can set this up click here.

We are receiving an increasing amount of enquiries on how you can transfer from your existing KiwiSaver scheme into our SuperEasy KiwiSaver Scheme. The process is really easy to set in place. All you need to do is complete our application form noting who your existing provider is and send the form into our office. We will do the rest.

We will set you up on our system ensuring the IRD has you registered as belonging to our SuperEasy KiwiSaver Scheme, SuperEasy KiwiSaver, and after receiving confirmation and approval from the IRD will then contact your previous KiwiSaver provider to arrange for the transfer of any existing funds. We will then write to you and confirm your up to date account balance details when all of this has been completed.

We have introduced a special offer allowing children to join our SuperEasy KiwiSaver Scheme for an affordable amount. Instead of the normal $500 minimum all it takes to open a child’s SuperEasy KiwiSaver Scheme account is a one-off payment of just $50. For details please click here.

The introduction of the new tax regimes, and KiwiSaver with its minimum lock-in of contributions to age 65 means that members in general will be taking a longer term view on their savings. We have therefore increased the exposure to growth assets at the younger ages for all of our existing Funds. For the KiwiSaver investor who is looking to take advantage of the first home deposit scheme and has, say, a 3–5 year time horizon, we have introduced our Conservative Fund.

The objectives of our existing Growth, Balanced, Income and new Conservative Fund are indicated by the target asset allocations as set out in the table below:

The objectives of our Automatic Fund are indicated by the target asset allocations as set out in the table below.

Our approach to responsible investment, including environmental, social and governance considerations is to have an average of 10% of our overseas equities to be specifically invested in socially responsible investment funds.

You should now be able to check your SuperEasy KiwiSaver Scheme account balance. If it is lower than expected it may be due to timing. IRD passes your contributions directly to your scheme provider after the contributions have been received from your employer and have been processed. This could be some time after your employer has deducted the money from your pay. The reason for this is that employers file their PAYE returns the month after they have deducted tax and KiwiSaver contributions from your pay, and then pass this on to IRD. IRD in turn needs to process the returns to ensure that all deductions are correct and then allocate them to the chosen provider.

You can check your transactions by registering on the KiwiSaver website www.kiwisaver.govt.nz.

If you have joined in the last 3 months then please remember that your KiwiSaver contributions will be held by the IRD in an interest bearing account until three months after receiving your first contribution. Your contributions including the interest earned and the Government kick-start of $1000 are then paid to your SuperEasy KiwiSaver Scheme account. Please note that your website balance will show a nil balance during the time that the IRD is holding these initial payments.