The KiwiSaver scheme, a
New Zealand
New Zealand ( mi, Aotearoa ) is an island country in the southwestern Pacific Ocean. It consists of two main landmasses—the North Island () and the South Island ()—and over 700 smaller islands. It is the sixth-largest island count ...
saving
Saving is income not spent, or deferred consumption. Methods of saving include putting money aside in, for example, a deposit account, a pension account, an investment fund, or as cash. Saving also involves reducing expenditures, such as recur ...
s scheme, came into operation from Monday, 2 July 2007. Participants can normally access their KiwiSaver funds only after the age of 65, but can withdraw them in certain limited circumstances, for example if undergoing significant financial hardship or to use a deposit for a first home.
A policy initiative of the
Fifth Labour Government of New Zealand
The Fifth Labour Government of New Zealand was the List of New Zealand governments, government of New Zealand from 10 December 1999 to 19 November 2008. New Zealand Labour Party, Labour Party leader Helen Clark negotiated a coalition with Jim A ...
(in office 1999–2008), KiwiSaver is governed by various Acts of Parliament, including the KiwiSaver Act 2006 (passed in September 2006).
As at 31 March 2021, the
Financial Markets Authority (NZ) reports
$81.6 billion in assets is managed by KiwiSaver providers.
Basic operation
Anyone who is entitled to live in New Zealand indefinitely and who normally lives in New Zealand is entitled to join KiwiSaver. Those under 18 require parental consent to join.
Employee participants can choose to contribute 3%, 4%, 6%, 8% or 10% of their gross pay, and can switch rates three months after setting a rate (unless employers agree to a shorter time frame). These contributions are deducted from an employee's pay and sent by the employer to Inland Revenue alongside their PAYE tax returns. The self-employed and unemployed can choose how much they want to contribute; while most KiwiSaver schemes have minimum contribution amounts for people in this category, several schemes allow any level of contributions. All eligible participants aged 18 to 64 starting a new job, with some exceptions, are automatically enrolled in KiwiSaver. New employees can choose to opt out from day 14 to day 56 of their employment.
Participants choose to put their savings in one of several "approved savings schemes". They can only belong to one scheme at a time but can change schemes at any time. If they do not choose a scheme, and the participant is aged 18 or over, they will be assigned either to the employer's default scheme or to a government-selected default scheme. Each scheme offers several managed funds to invest the participants' savings in, with varying degrees of expected risk and return.
Employers are required to contribute at least 3% of an employee's gross pay to the employee's KiwiSaver account. The employer contribution is taxed at the employee's marginal tax rate, so the actual amount the employee receives in their account is between 1.83% and 2.685%.
From the start of the scheme until May 2015, those who joined KiwiSaver received a $1,000 tax-free "kick start" to their KiwiSaver account from the government. The
Fifth National Government removed it effective from 21 May 2015 as part of its
2015 budget.
Those aged 18 and over also receive from the government a "member tax credit" (MTC) of 50 cents per dollar contributed (or part thereof) for the first $1,042.86 contributed per year (1 July to 30 June). The MTC is not a true
tax credit
A tax credit is a tax incentive which allows certain taxpayers to subtract the amount of the credit they have accrued from the total they owe the state. It may also be a credit granted in recognition of taxes already paid or a form of state "disc ...
; it is a monetary contribution paid by the government via Inland Revenue, mainly to offset the tax paid on interest earned. Those withdrawing KiwiSaver funds to help buy a first home may also get a deposit subsidy of up to $5,000 (existing homes) or $10,000 (new builds) from
Housing New Zealand
Housing, or more generally, living spaces, refers to the construction and assigned usage of houses or buildings individually or collectively, for the purpose of shelter. Housing ensures that members of society have a place to live, whether ...
, provided they meet the required income, deposit and house price requirements.
A participant can access all their KiwiSaver contributions once they reach the age of entitlement for New Zealand Superannuation (currently 65), as long as they have been a KiwiSaver member for five years. Otherwise, KiwiSaver contributions can only be accessed (with restrictions) in the following circumstances:
* a one-off withdrawal after three years to help buy a first home.
* serious illness or death
* significant financial hardship
* permanent emigration from New Zealand to a country other than Australia.
Mortgage diversion
Some provider funds offer a
mortgage
A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any pu ...
diversion scheme where some of the employee contributions can be used to make mortgage repayments instead of going towards Kiwisaver after a person has been signed up for 12 months. This is only allowed for repayments on the main home, and not for other properties such as investment or holiday homes. Employer contributions will not be able to be used for the mortgage.
This option was abolished by the National Government that came into power in 2008, though employees who used this option prior to June 2009 can continue to use it as long as their provider offers it.
Savings Suspension
Persons on the scheme can take savings suspension (previously known as a contribution holiday) after 12 months for any period from 3 months to 5 years without any limits on future savings suspension.
Children
People aged under 18 may join KiwiSaver if the provider allows their enrolment. If not employed, the child has to agree to a level of contributions with the provider. As soon as the child is employed they must contribute and can never opt out. Children are entitled to the tax credits.
As of August 2021, there were 252,000 KiwiSaver members aged under eighteen.
Funds
Each scheme offers several managed funds to invest the participants' KiwiSaver savings in, and members may invest parts of their savings in different funds. Each managed fund has different
risk
In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environme ...
s, returns, investment composition and fees.
Categories
Inland Revenue and the
Commission for Financial Literacy and Retirement Income both divide funds into five broad categories, based on their investment composition:
* Cash funds or defensive funds invest less than 10% of savings in growth assets, such as
shares and
property
Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of property may have the right to consume, alter, share, r ...
, and more than 90% of savings in income assets, such as bank deposits and
bond
Bond or bonds may refer to:
Common meanings
* Bond (finance), a type of debt security
* Bail bond, a commercial third-party guarantor of surety bonds in the United States
* Chemical bond, the attraction of atoms, ions or molecules to form chemica ...
s. These funds are low risk but offer low returns.
* Conservative funds invest between 10% and 35% of savings in growth assets and between 65% and 90% in income assets. These funds are a medium-low risk but offer medium-low returns. If a member doesn't choose a fund, or they are in a default scheme, their savings are automatically put into a conservative fund.
* Balanced funds invest between 35% and 63% of savings in growth assets and between 37% and 65% in income assets. These funds offer medium returns with medium risk.
* Growth funds invest between 63% and 90% of savings in growth assets and between 10% and 37% in income assets. These funds offer medium-high returns but with medium-high risk.
* Aggressive funds invest more than 90% of savings in growth assets and less than 10% in income assets. These funds offer high returns but with high risk.
Some providers offer a "lifetime" fund option, which sees the member's savings move to more defensive funds as the member ages. An example may have members aged under 35 in an aggressive fund, those aged 35 to 49 in a growth fund, those aged 50 to 59 in a balanced fund, those aged 60 to 64 in a conservative fund, and those aged 65 and over in a defensive fund.
Ethical concerns
There have been concerns raised that members are not easily able to choose
ethical investing
Socially responsible investing (SRI), social investment, sustainable socially conscious, "green" or ethical investing, is any investment strategy which seeks to consider both financial return and social/environmental good to bring about social ...
due to a lack of information about the makeup of funds. In particular, investments which include profits the production of
cluster munitions
A cluster munition is a form of air-dropped or ground-launched explosive weapon that releases or ejects smaller submunitions. Commonly, this is a cluster bomb that ejects explosive bomblets that are designed to kill personnel and destroy vehicl ...
,
landmines
A land mine is an explosive device concealed under or on the ground and designed to destroy or disable enemy targets, ranging from combatants to vehicles and tanks, as they pass over or near it. Such a device is typically detonated automati ...
, and
nuclear weapons
A nuclear weapon is an explosive device that derives its destructive force from nuclear reactions, either fission (fission bomb) or a combination of fission and fusion reactions (thermonuclear bomb), producing a nuclear explosion. Both bomb ...
have been highlighted as being illegal in New Zealand.
There are however now at least five funds aimed specifically at these concerns, describing themselves as variously as "socially responsible", "The ethical KiwiSaver scheme for Christians", or expressly excluding "companies involved in cluster bombs, landmines, tobacco, gambling and pornography".
Withdrawing savings
As the main purpose of the KiwiSaver fund is for retirement savings, money can be withdrawn from the fund at the age at which the person is eligible for the government
superannuation, currently 65, as long as they have been a KiwiSaver member for five years.
However, money can be withdrawn before retirement in a number of circumstances which are outlined in Schedule 1 (KiwiSaver scheme rules), of the KiwiSaver Act 2006.
* After three years contributions can be withdrawn to buy the first home. This excludes the government kickstart of $1000, and until 1 April 2015, the tax credits.
* In the event of significant financial hardship. This excludes the government $1000 kickstart and tax credits.
* In the event of serious illness.
* If a person permanently emigrates from New Zealand to a country other than Australia. This excludes the government tax credit.
* Divorce or the end of a de facto relationship longer than 3 years (less if there are children). KiwiSaver savings earned during the marriage, civil union or de facto relationship are considered relationship property under the
Property (Relationships) Act 1976
The Property (Relationships) Act 1976 is a New Zealand statute that primarily deals with the division of property of married couples, domestic partnership, de facto couples and civil union couples when they separate or when one of them dies. In ...
and can be claimed against by an ex-partner as with any other relationship property. KiwiSaver savings earned prior to the relationship are considered separate property and cannot be claimed against by an ex-partner.
* Death. KiwiSaver savings are paid into the deceased person's estate.
If a New Zealander permanently emigrates to Australia, they may choose to keep their KiwiSaver savings in New Zealand or transfer them to a complying
Australian superannuation fund. Likewise, if an Australian permanently emigrates to New Zealand, they may choose to keep the Australian superannuation savings in Australia or transfer them to a complying KiwiSaver fund. Regardless of where the money is held, Australian superannuation savings can be withdrawn once the person turns 60 and retires from working, or turns 65 regardless of employment status. Australian savings cannot be withdrawn to help buy a first home.
Grant for first home
KiwiSaver contributors meeting certain criteria can apply for a cash grant to purchase their first home or a piece of land. This grant is for individuals earning less than $85,000 per year or two or more individuals earning $130,000 per year in total. This grant is in addition to the withdrawing savings option.
Political issues
The KiwiSaver scheme was one of the promises on Prime Minister
Helen Clark
Helen Elizabeth Clark (born 26 February 1950) is a New Zealand politician who served as the 37th prime minister of New Zealand from 1999 to 2008, and was the administrator of the United Nations Development Programme from 2009 to 2017. She was ...
's
controversial 2005 pledge card as part of the
Labour Party's promises for that election. In 2008
John Key
Sir John Phillip Key (born 9 August 1961) is a New Zealand retired politician who served as the 38th Prime Minister of New Zealand from 2008 to 2016 and as Leader of the New Zealand National Party from 2006 to 2016. After resigning from bo ...
, then Leader of the Opposition stated that a
National
National may refer to:
Common uses
* Nation or country
** Nationality – a ''national'' is a person who is subject to a nation, regardless of whether the person has full rights as a citizen
Places in the United States
* National, Maryland, c ...
led government would mean that "there won't be radical changes...there will be some modest changes to KiwiSaver".
KiwiSaver therefore has broad political support.
Additionally, fee subsidy for those people who become members after 1 April 2009, has been removed and for those people who joined before 1 April 2009 only 1 or 2 years fee subsidy will be paid (depending upon the date the member joined).
On 16 July 2009, the governments of New Zealand and Australia announced plans to allow funds in KiwiSaver and Australian superannuation to be transferred between the two schemes. This would allow New Zealanders who have worked in Australia to repatriate their superannuation money to New Zealand, and likewise for Australians who have worked in New Zealand to repatriate their KiwiSaver money to Australia. Trans-Tasman portability of retirement savings came into force on 1 July 2013; from that date, New Zealanders could no longer withdraw their KiwiSaver funds in cash on the basis of permanent emigration to Australia.
In 2013 Labour said it would like to make the KiwiSaver scheme universal, in the face of the rising cost of superannuation, while financial organisations called for raising the minimum contributions to 7 per cent.
As part of the
2015 New Zealand budget, the National led Government repealed the $1,000 "kick-start" payment.
Following the presentation of the budget, Finance Minister
Bill English
Sir Simon William English (born 30 December 1961) is a New Zealand former National Party politician who served as the 39th prime minister of New Zealand from 2016 to 2017 and as the 17th deputy prime minister of New Zealand and minister of f ...
indicated the government was considering "mass auto-enrolment" of all workers under the age of 65.
Criticisms
KiwiSaver has been critiqued as being a part of a strategy to reduce New Zealand Universal Superannuation provision and expand New Zealanders' reliance on private financial institutions to fund retirement income, and can be seen as part of the wider global strategy of pension privatisation originally promoted by the World Bank and others.
Winston Peters
Winston Raymond Peters (born 11 April 1945) is a New Zealand politician serving as the leader of New Zealand First since its foundation in 1993. Peters served as the 13th deputy prime minister of New Zealand from 1996 to 1998 and 2017 to 2020, ...
has critiqued KiwiSaver as a 'billion dollar rort' by the finance industry and proposed alternatively that private KiwiSaver funds should be invested in a government run "KiwiFund" which would invest mainly in New Zealand assets and infrastructure.
Russel Norman
Russel William Norman (born 2 June 1967) is a New Zealand politician and environmentalist. He was a Member of Parliament and co-leader of the Green Party. Norman resigned as an MP in October 2015 to work as Executive Director of Greenpeace Aote ...
of the
Green Party
A green party is a formally organized political party based on the principles of green politics, such as social justice, environmentalism and nonviolence.
Greens believe that these issues are inherently related to one another as a foundation ...
has earlier proposed directing KiwiSaver funds into the
New Zealand Superannuation Fund
The New Zealand Superannuation Fund ( mi, Te Kaitiaki Tahua Penihana Kaumātua o Aotearoa) is a sovereign wealth fund in New Zealand. New Zealand currently provides universal superannuation for people over 65 years of age and the purpose of the ...
(also known as the "Cullen Fund") to reduce high fees paid to financial industry.
Enrollment
It was announced on 30 August 2007 that nearly 130,000 New Zealanders had signed up for the scheme.
In October 2007, after 3 months of operation, 200,000 people had signed up, leading Revenue Minister
Peter Dunne
Peter Francis Dunne (born 17 March 1954) is a retired New Zealand politician who was the Member of Parliament (MP) for Ōhāriu. He held the seat and its predecessors from 1984 to 2017—representing the Labour Party in Parliament from 1984 ...
to say that
If take-up continues at this rate it might be easier to make the scheme compulsory, thereby removing the employer compliance costs associated with people opting out.
He said that these were his personal views and not those of the government.
On 6 December 2007, 5 months after the start of KiwiSaver, it was announced that 316,000 people had signed up. Over half were under 45, nearly 20% were under 25, and 33,000 were under 20.
By 31 May 2008 uptake had more than doubled to 673,000, with more than $900 million having been paid into KiwiSaver schemes.
As a comparison, the cost of New Zealand Superannuation for 2014/15 is $11,589 million.
Similar schemes in other countries
*
Registered Retirement Savings Plan (RRSP) and
Tax-Free Savings Account
A tax-free savings account (TFSA, french: links=no, Compte d'épargne libre d'impôt, CELI) is an account available in Canada that provides tax benefits for saving. Investment income, including capital gains and dividends, earned in a TFSA is n ...
(TFSA) (Canada)
*
Individual Retirement Account
An individual retirement account (IRA) in the United States is a form of pension provided by many financial institutions that provides tax advantages for retirement savings. It is a trust that holds investment assets purchased with a taxpayer's ear ...
(IRA) and
401K (United States)
*
Self-Invested Personal Pension
A self-invested personal pension (SIPP) is the name given to the type of UK government-approved personal pension scheme which allows individuals to make their own investment decisions from the full range of investments approved by HM Revenue and C ...
(SIPP) and
Individual Savings Account
An individual savings account (ISA; ) is a class of retail investment arrangement available to residents of the United Kingdom. First introduced in 1999, the accounts have favourable tax status. Payments into the account are made from after-tax i ...
(ISA) (United Kingdom)
*
Personal Retirement Savings Account
A Personal Retirement Savings Account (PRSA) is a type of savings account introduced to the Irish market in 2003. In an attempt to increase pension coverage, the Pensions Board introduced a retirement savings account, that would entice the lower ...
(PRSA) - (Ireland)
*
Superannuation in Australia
In Australia, superannuation, or just super, is the term for retirement pension benefit funds. Employers make compulsory contributions into these funds on behalf of their employees.
Superannuation is compulsory for all employed people workin ...
(Australia) – Australia and New Zealand have a reciprocal agreement allowing New Zealanders moving to Australia to transfer their Australian superannuation scheme to approved KiwiSaver funds, and vice versa.
*
iDeCo (Japan)
*
Mandatory Provident Fund
The Mandatory Provident Fund (), often abbreviated as MPF (), is a compulsory saving scheme (pension fund) for the retirement of residents in Hong Kong. Most employees and their employers are required to contribute monthly to mandatory provident f ...
(
Hong Kong
Hong Kong ( (US) or (UK); , ), officially the Hong Kong Special Administrative Region of the People's Republic of China ( abbr. Hong Kong SAR or HKSAR), is a city and special administrative region of China on the eastern Pearl River Delt ...
)
*
Vanuatu National Provident Fund
The Vanuatu National Provident Fund (VNPF) is a compulsory pension scheme in Vanuatu
Vanuatu ( or ; ), officially the Republic of Vanuatu (french: link=no, République de Vanuatu; bi, Ripablik blong Vanuatu), is an island country located i ...
(
Vanuatu
Vanuatu ( or ; ), officially the Republic of Vanuatu (french: link=no, République de Vanuatu; bi, Ripablik blong Vanuatu), is an island country located in the South Pacific Ocean. The archipelago, which is of volcanic origin, is east of no ...
) – The Vanuatu National Provident Fund is a compulsory savings scheme for employees who receive a salary of Vt3, 000 or more a month, to help them financially at retirement.
*
Central Provident Fund
The Central Provident Fund Board (CPFB), commonly known as the CPF Board or simply the Central Provident Fund (CPF), is a compulsory comprehensive savings and pension plan for working Singaporeans and permanent residents primarily to fund thei ...
(
Singapore
Singapore (), officially the Republic of Singapore, is a sovereign island country and city-state in maritime Southeast Asia. It lies about one degree of latitude () north of the equator, off the southern tip of the Malay Peninsula, borde ...
)
*
Employees Provident Fund (Malaysia)
Employees' Provident Fund (EPF; Malay: Kumpulan Wang Simpanan Pekerja, KWSP) is a federal statutory body under the purview of the Ministry of Finance. It manages the compulsory savings plan and retirement planning for private sector workers in M ...
*
Pensions in Chile The Chile pension system (Spanish: ''Sistema Previsional'') refers to old-age, disability and survivor pensions for workers in Chile. The pension system was changed by José Piñera, during Augusto Pinochet's dictatorship, on November 4, 1980 from ...
See also
* Pension
*
Pension system
A pension (, from Latin ''pensiō'', "payment") is a fund into which a sum of money is added during an employee's employment years and from which payments are drawn to support the person's retirement from work in the form of periodic payments ...
References
External links
KiwiSaver websiteKiwiSaver schemeInland Revenue KiwiSaver pageKiwiSaver decision guidefrom th
New Zealand Retirement CommissionConsumerSaver– Consumers' Institute site
KiwiSaver Act 2006
{{DEFAULTSORT:Kiwisaver
2007 establishments in New Zealand
Economy of New Zealand
Retirement in New Zealand
Taxation in New Zealand
Government finances in New Zealand
Helen Clark