KiwiSaver News

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

The May Budget has signalled good news to all members of our SuperEasy and SuperEasy KiwiSaver schemes. All members will pay less tax on their investment earnings from 1 October 2010. The rate of tax that is charged on your investment earnings is called your Prescribed Investor Rate (PIR).

A consequence of the Government reducing the company tax rate is the reduction in the maximum tax rate for Portfolio Investment Entities (PIEs) to 28%. The other PIR rates (21% and 12.5%) are also impacted by changes in personal tax rates. These will also move to match the personal tax rate reductions from 1 October 2010. The current PIE and taxable income thresholds will not change.

As both our SuperEasy and SuperEasy KiwiSaver schemes are PIEs members of our schemes will enjoy the benefits of these tax changes. 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 account. The current and proposed PIR rates are:

What are the new Prescribed Investor Rates? From 1 April 2010 you have the choice of selecting from three options, you can select a Prescribed Investor Rate (PIR) rate of 30%, 21% or 12.5%, previously you could only select a rate of 19.5% or 30%.

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 and SuperEasy schemes. Depending on the level of your taxable income you can have your earnings in the schemes taxed at 30%, 21% or 12.5%. 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 account.

To determine what PIR rate you should be paying on your SuperEasy KiwiSaver and SuperEasy Scheme click here.

A new Tax Bill was introduced in Parliament on 19 November 2009 giving effect to the recent agreement between the New Zealand and Australian Governments on portability of retirement savings.

The Bill allows a person who has retirement savings in both Australia and New Zealand to consolidate them in one account in their current country of residence.

The key features are:

• A KiwiSaver member must permanently emigrate to Australia to be able to transfer their retirement savings.
• Retirement savings can only be transferred between a KiwiSaver scheme and a regulated Australian complying superannuation fund.
• A KiwiSaver member will not be able to withdraw any retirement savings in cash after one year if they permanently emigrate to Australia (as can be done if the person emigrates to a country other than Australia) This might not sound so exciting however the next bullet point explains why this is good news.
• KiwiSaver tax credits can be transferred. (Under the current rules, the tax credits are clawed-back if the person withdraws their savings after permanent emigration.)
• 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.

The changes are expected to come into force in the second half of 2010.

Each year the Government will match our personal contributions that have been paid into our KiwiSaver accounts. This is called our KiwiSaver Member Tax Credit; which has nothing to do with our tax returns or how much we earn. It all depends on how much we have paid into our KiwiSaver accounts in the past KiwiSaver Year.

It’s important to know how much KiwiSaver Member Tax Credit (MTC) we will each be entitled to receive and to ensure wherever possible that we are eligible to receive the maximum amount.

To identify how much MTC we will be entitled to receive and what we need to do if there is a shortfall and wish to make any more payments click here.

SuperEasy is our retirement savings plan which is offered in two parts, our KiwiSaver scheme SuperEasy KiwiSaver and our non-KiwiSaver scheme SuperEasy. You can join one or both parts, structuring your retirement savings according to your individual needs and circumstance.

For most people our funds in KiwiSaver will be locked-in until at least age 65 at the earliest, your funds in SuperEasy become available from the day you leave your Council.

As soon as your own employee contributions for KiwiSaver have reached the amount of $1043 per annum and providing you are over 18 you will qualify for the full Member Tax Credit of $1043 each year, and the full compulsory employer contribution and also the maximum tax exemption on employer contributions. Any savings on top of that can then be directed to our non-KiwiSaver scheme (SuperEasy). This will allow you to gain the maximum financial advantage from your KiwiSaver scheme without unnecessarily locking additional amounts through to age 65 when you don’t need to. This provides you with much greater flexibility on how you can use your retirement savings and at no additional cost.

For example suppose you wish to contribute 8% of your salary to superannuation, you could pay 2% into our KiwiSaver scheme SuperEasy KiwiSaver (and pick up the employer’s 2%) and then pay 6% to our non-KiwiSaver scheme SuperEasy all in the one package. And you can check both account balances on our website, www.supereasy.co.nz.

NB If you are on an annual salary of $52,000 or above and contribute 2% into KiwiSaver you will have reached the maximum financial entitlements your employer and the Government will pay into your KiwiSaver. (Please refer to our April 2009 News Article: One million people signed up – What makes it so good)

To be consistent with the KiwiSaver Brand Guidelines, as from 30 June 2009 we have changed the name of our KiwiSaver scheme:

Also from 30 June 2009 the scheme will be known by its trading name of SuperEasy KiwiSaver.

Our complying superannuation fund Locked-In SuperEasy scheme is closed to new members. Therefore to simplify our offer we will be changing the name of our non-KiwiSaver scheme:

Other than changing the name the schemes are otherwise not affected in any way.

This allows local authority staff to; join “SuperEasy KiwiSaver” or join “SuperEasy”, or join both “SuperEasy KiwiSaver” and “SuperEasy” – all accommodated within the one Application Form and Investment Statement.

One of the most significant aspects of the Budget was the lack of any major announcement regarding KiwiSaver. KiwiSaver has been amended on a number of occasions, including by the Government in December 2008. The only amendment announced by this budget is the closure of the mortgage diversion facility to new applicants from 1 June 2009. Only 600 people nationwide have taken up the facility, and the Government has decided it is unnecessary compliance cost. The lack of further major change is positive, and will give the scheme time to settle as employees, employers and the Government adjust to how it is working.

Civic had already closed the mortgage diversion facility from its KiwiSaver scheme from 1 April 2009.

The Government has announced more than one million people are now saving for their future through KiwiSaver. Anyway you look at it, that is a lot of New Zealanders; so what makes KiwiSaver such an attractive way to save for our future?

Just to recap; the new government made changes to KiwiSaver in December 2008, which came into effect on 1 April 2009. A summary of the changes is:

• The minimum employee contribution is 2%
• The compulsory employer contribution is capped at 2%
• The employer superannuation tax exemption is capped at 2%
• Removal of the employer tax credit
• Removal of the Government fee subsidy of $40 pa for KiwiSaver administration
• Amendment of the KiwiSaver Act and a repeal of the Employment Relations Act 2008 amendment relating to KiwiSaver and total remuneration packages.

So what does this mean for KiwiSaver?

Let’s say you are an employee and earning $50,000 per annum, and your employer is subsidising KiwiSaver at the matching compulsory rate as required under the new changes. You are making payments through your work place by contributing the new minimum rate of 2% of your gross salary to KiwiSaver, an amount of $1,000 per year; then what will your employer and the government have to pay?

In the above example if I put in $5,000 over 5 years, there will be an additional $5,000 and $6,000 put in from my employer and the government respectively, making a total of $16,000 that has been paid into my KiwiSaver.

This is down to three simple reasons:

• Matching Compulsory Employer Contribution of 2% of gross salary, with no ESCT (employer superannuation contribution tax) deducted from the employers contribution; in the example above this is worth an additional $1,000 each year
• Initial one-off kick start of $1,000 paid in when we start a KiwiSaver account
• Annual matching subsidy from the Govt. of up to $1,043 on our own personal contributions paid into KiwiSaver; in the example above this is worth an additional $1,000 each year.

Now that the minimum contribution rate is 2% this has made it much more affordable for everyone to join and we think everybody should join KiwiSaver. So if you have not yet joined KiwiSaver no matter what your circumstances are; the best time to join has to be RIGHT NOW! One million people already think so!

In December we provided information letting you know the changes the new government was making to KiwiSaver. This legislation was enacted in December 2008, which takes effect from 1 April 2009. Just to recap a summary of the changes are:

• The minimum employee contribution is 2%
• The compulsory employer contribution is capped at 2%
• The employer superannuation tax exemption is capped at 2%
• Removal of the employer tax credit
• Removal of the Government fee subsidy of $40 pa for KiwiSaver administration
• Amendment of the KiwiSaver Act and a repeal of the Employment Relations Act 2008 amendment relating to KiwiSaver and total remuneration packages.

How will this affect KiwiSaver?

We believe the reduction in the minimum employee contribution to 2% and the capping of the compulsory employer contribution and the employer superannuation tax exemption to 2% will mean there will be less money in total invested in KiwiSaver.

These changes also bring into question the financial viability of using the mortgage diversion facility through KiwiSaver. For many people they would only be able to redirect 1% of their employee contribution to KiwiSaver, and given that this redirected amount could reduce their entitlement to their member tax credit, they could find they are financially better off to make mortgage payments direct to their mortgage lender and not via their KiwiSaver.

The removal of the Government fee subsidy means we will now have to set a fixed amount for our annual administration fee.

What is the impact to Civic’s KiwiSaver scheme?

Mortgage Diversion: from 1 April 2009 applications for Mortgage Diversion will not be available through SuperEasy KiwiSaver.

Administration Fee: We wish to have one simple fee for all members, irrespective of their individual Prescribed Investor Rate (PIR) and not affected by whether they work for a council or not, so from 1 July 2009 the administration fee for our SuperEasy KiwiSaver will be $4.50 per month. When you compare this to the previous fee which was set at the government subsidy of $40 per year this means there will be an annual after tax reduction to the fee of $2.20 or an increase of $3.47 depending if your PIR is set at 30% or 19.5%. On a monthly basis this works out to a reduction of around 18 cents or an increase of 29 cents; hardly any change.

Our Total Charges (Clear, Simple and Low) This reinforces we provide a very low wholesale charge to all of our KiwiSaver members. The fund-management charge of 0.5% pa and the administration fee of $4.50 per month are the ONLY charges made by Civic: we have no set-up charge, no switching fee and unlike many other KiwiSaver schemes will not pay commission or join-up fees to so-called “independent advisers”. There can be some other fund management charges such as trusteeship and audit fees passed through from Civic’s fund managers, which if applicable would typically average less than 0.1% pa. And remember once you join, irrespective of your circumstance you can remain a member for as long as you choose and continue to enjoy our low wholesale charges.

Civic is not tied or linked to any one investment manager or an in-house investment team and currently uses AMP Capital Investors (NZ) Ltd and ASB Group Investments Ltd to manage the assets for our SuperEasy KiwiSaver and SuperEasy schemes. As such, the scheme’s independent trustees continually take professional advice and receive reports from and on behalf of these fund managers and are happy to report that they consider them both currently suitable for managing the assets of these schemes.

The trustees also continually take professional advice to review the asset allocation of the funds to achieve the optimum long term outcome for all members over their life time with the schemes. By way of example, in early December 2008 the target level of hedging of the Overseas Equities for the Automatic Fund was increased as set out in the table below to better reflect the long term future level of the NZ$. By not having this hedging when the NZ$ was higher, members of SuperEasy KiwiSaver (and SuperEasy) have benefited.

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, east 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 have a special offer whereby children under the age of 18 can join up to our SuperEasy KiwiSaver scheme by paying in a one-off payment of just $50.

As for everyone else, when a child in KiwiSaver starts employment they will have to pay the minimum contribution rate of 2% of their gross salary and have this deducted from their pay. The exception for this (as for everyone else) is if they have been a member of KiwiSaver for over one year, in which case they can decide to elect to have a contribution holiday and not have any KiwiSaver deductions made from their pay.

This means that if a person under age 18 signs up to KiwiSaver now and is currently working they will have to have the minimum 2% contribution rate deducted from their pay for at least one year after which time they could elect to go on a contribution holiday.

Let’s look at some real examples. I have 3 daughters who are all joined up as members of SuperEasy KiwiSaver and their ages are 18, 16 and 13. For the sake of simplicity let’s say they each joined on their last birthday.

Example 1
The 18 old is a student at university and has a regular part time job. She has collected the $1000 government kick-start and will receive the annual Member Tax Credit (MTC). She will have 2% of her gross earnings deducted from her job until at least age 19, at which time she can take a contribution holiday if she decides not to have any KiwiSaver payments deducted from her salary. However, to collect the MTC and the employer contribution I think she will want to pay the 2%.

Example 2
The 16 old is at school and has started a regular part time job six months after her 16th birthday. She has collected the $1000 government kick-start and will not receive any annual Member Tax Credit (MTC) until she turns age 18. She will have 2% of her gross earnings deducted from her job for at least another six months until she reaches age 17, at which time she can take a contribution holiday if she decides not to have any KiwiSaver payments deducted from her salary.

Example 3
The 13 old is at school and has no job. She has collected the $1000 government kick-start, and will not receive any annual Member Tax Credit (MTC) until she turns age 18. Assuming she does not start any form of employment for at least another year, she will then have the option of whether to have KiwiSaver payments deducted from her pay or not when she starts work; completely her call!

It’s important to ensure we know how much KiwiSaver Member Tax Credit (MTC) we will each be entitled to receive at the end of KiwiSaver’s first year of operation, 30 June 2008. It relates to two things:

• Our Member Tax Credit (MTC) Start Date, and
• How much we have personally paid into KiwiSaver before the end of June 2008. (This does not include an amount paid by our employer)

To identify how much MTC we will be entitled to receive and what we need to do if there is a shortfall and wish to make any more payments 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 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 SuperEasy KiwiSaver for an affordable amount. Instead of the normal $500 minimum all it takes to open a child’s SuperEasy KiwiSaver 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.

We introduced the lower management fee of 0.5%pa to all of our funds from 1 January 2008. Previously this low fee only applied to our Automatic Fund with the fee for our Growth, Balanced and Income Funds being 0.75% pa. We are delighted to announce that this low fee of 0.5%pa will apply to all of our funds including the new Conservative Fund. This low fee also takes into consideration our approach to responsible investment.

The fund-management charge of 0.5% pa is the ONLY charge made by Civic: we have no set-up charge, no switching fee and no additional administration fee above the government subsidy. There can be some other fund management charges such as trusteeship and audit fees, which if applicable would typically average less than 0.1% pa.

We are often asked why you should select Civic’s SuperEasy KiwiSaver as your KiwiSaver scheme. Whilst not claiming to be independent we are genuine in our endeavours to give local government staff the best KiwiSaver scheme we can. We are therefore proud to be able to list our reasons below. Luckily for non-local government staff, they can be members of SuperEasy KiwiSaver too.

1. Civic exists purely for the benefit of local government, not unknown overseas shareholders looking after their own interests. Civic is dedicated to providing local government (and its staff) with the best financial solutions.
2. SuperEasy’s Automatic Fund solves the inherent problem that exists in all other investment and superannuation funds, which is when to switch from growth (higher risk) assets to income (lower risk) assets.
3. The fund-management charge of 0.5% pa is the ONLY charge made by Civic: we have no set-up charge, no switching fee and no additional administration fee above the government subsidy. There can be some other fund management charges such as trusteeship and audit fees, which if applicable would typically average less than 0.1% pa.
4. The Automatic Fund is designed to last for life, not just until a member changes jobs or retires. In particular, the Automatic Fund will be there to manage in retirement a member’s retirement savings. Note that when a SuperEasy KiwiSaver member is in retirement they will still enjoy SuperEasy’s low, wholesale charges.
5. SuperEasy is “PIE-compliant” and will allow tax flow through. This means that 33% and 39% taxpayers will be taxed at 30 % on their investment income (from 1 April 2008) and that 19.5% tax payers can choose to have their investment income taxed at 19.5% rather than 30%. Not all superannuation funds are PIE-compliant.
6. Civic is not tied or linked to any one investment manager, or an in-house investment team.
7. Independent scheme trustees (five appointed by local government, one by the Council of Trade Unions) oversee the management and propriety of the scheme as the scheme’s trustee.
8. You can mix and match contributions with our KiwiSaver scheme (SuperEasy KiwiSaver) and our non-KiwiSaver scheme (SuperEasy) all within the one package for extra flexibility and bigger retirement savings.
9. Once you join, irrespective of your circumstance you can remain a member for as long as you choose of one or both schemes and continue to enjoy the same low wholesale charge that applies to local government staff.

You should now be able to check your SuperEasy KiwiSaver 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 account. Please note that your website balance will show a nil balance during the time that the IRD is holding these initial payments.

If you're 18 or over, each year the Government will pay into your account a member tax credit matching your contributions up to $20 per week from the time you become a KiwiSaver member (up to $1,042.86 a year). The member tax credit applies to your personal (not employer) contributions received by the scheme in the member credit year (1 July to 30 June). Employer contributions or any contributions you may divert to your mortgage don't qualify for the member tax credit. To qualify for the member tax credit, your principal place of residence must be in New Zealand, except for:

• government employees who are serving outside New Zealand
• people who are working overseas as a volunteer

To receive the total member tax credit of $1,042.86 you must be a member for the entire member credit year (1 July to 30 June). For example, if you join a KiwiSaver scheme half way through a year, say on 1 January, then you can only receive a maximum of $521.43 (half the total of $1,042.86) in that first year. Thereafter in any subsequent year you are eligible to receive the full MTC irrespective of when or how you pay it into your KiwiSaver scheme (this could be by a lump sum or top-up payment) as long as it is paid in during that member credit year. Let’s say you sign up for KiwiSaver and are paying in 4% of your gross salary and then a few years down the track your situation changes and you put your contributions on hold. You can still make personal payments whenever you like and these will still qualify for your MTC. Civic Assurance, as your scheme provider, will claim the tax credit on your behalf after 30 June each year and when received will invest it in your KiwiSaver account.

The member tax credit will be paid until you're eligible to access your savings - when you're eligible for NZ Super (currently 65) or after five years' membership, whichever is later. If you join between the ages of 60 and 65, you won't be able to access your savings until you have been a KiwiSaver member for five years. So if you join at the age of 62, you'll be able to access your savings at 67.