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KiwiSaver is a New Zealand savings scheme which has been operating since 2 July 2007. Participants can normally access their KiwiSaver funds only after the age of 65, but can withdraw them earlier 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 (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 2023, the Financial Markets Authority (NZ) reports $93.7 billion in assets is managed by KiwiSaver providers.[1]

Basic operation

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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%,[2] 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.[3][4] 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.[5]

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.[6] 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; 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, 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

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Some provider funds offer a mortgage 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

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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

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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.[7] Children are entitled to the tax credits.[8]

As of August 2021, there were 252,000 KiwiSaver members aged under eighteen.[9]

Funds

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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 risks, returns, investment composition and fees.

Categories

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Inland Revenue and the Commission for Financial Literacy and Retirement Income both divide funds into five broad categories, based on their investment composition:[10][11]

  • Cash funds or defensive funds invest less than 10% of savings in growth assets, such as shares and property, and more than 90% of savings in income assets, such as bank deposits and bonds. 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

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There have been concerns raised that members are not easily able to choose ethical investing due to a lack of information about the makeup of funds.[12] In particular, investments which include profits the production of cluster munitions, landmines, and nuclear weapons have been highlighted as being illegal in New Zealand.[13][14]

There are however now at least five funds aimed specifically at these concerns,[15] describing themselves as variously as "socially responsible",[16] "The ethical KiwiSaver scheme for Christians",[17] or expressly excluding "companies involved in cluster bombs, landmines, tobacco, gambling and pornography".[18]

Withdrawing savings

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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.[19]
  • 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 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

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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.[20]

Political issues

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The KiwiSaver scheme was one of the promises on Prime Minister Helen Clark's controversial 2005 pledge card as part of the Labour Party's promises for that election. In 2008 John Key, then Leader of the Opposition stated that a National led government would mean that "there won't be radical changes...there will be some modest changes to KiwiSaver".[21] 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[22] 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,[23] while financial organisations called for raising the minimum contributions to 7 per cent.[24]

As part of the 2015 New Zealand budget, the National led Government repealed the $1,000 "kick-start" payment.[6] Following the presentation of the budget, Finance Minister Bill English indicated the government was considering "mass auto-enrolment" of all workers under the age of 65.[25]

Criticisms

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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,[26] and can be seen as part of the wider global strategy of pension privatisation originally promoted by the World Bank and others.[27] Winston Peters 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.[28] KiwiSaver has also been criticized for frequent changes by successive governments, including the removal of a number of incentives originally designed to encourage KiwiSaver enrolment.[29] KiwiSaver has been labelled a "poor cousin" by international standards, including comparable government supported schemes in the UK, US, Australia, and Singapore. In most cases the tax advantages in other countries are substantial, and earlier withdrawal options are possible in most cases.[30]

Russel Norman of the Green Party has earlier proposed directing KiwiSaver funds into the New Zealand Superannuation Fund (also known as the "Cullen Fund") to reduce high fees paid to financial industry.[31][32]

Enrollment

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It was announced on 30 August 2007 that nearly 130,000 New Zealanders had signed up for the scheme.[33][34]

In October 2007, after 3 months of operation, 200,000 people had signed up, leading Revenue Minister Peter Dunne 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.[35]

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.[36] By 31 May 2008 uptake had more than doubled to 673,000, with more than $900 million having been paid into KiwiSaver schemes.[37]

KiwiSaver statistics[38]
As at Active members % of population
under 65[39]		 Total contributions
$m (year)		 Total contributions
$m (cumulative)
30 June 2008 716,600 19.2% 1,037 1,037
30 June 2009 1,100,500 29.2% 2,116 3,154
30 June 2010 1,459,900 38.4% 2,648 5,801
30 June 2011 1,755,900 46.0% 2,911 8,712
30 June 2012 1,966,400 51.5% 3,248 11,960
30 June 2013 2,146,800 56.0% 3,070 15,030
30 June 2014 2,350,600 60.9% 4,096 19,126
30 June 2015[40] 2,488,994 64.5% 4,900 24,365
30 June 2016[41] 2,608,383 72.8% 5,000 33,364
30 June 2017[42] 2,722,147 86.77% 5,500 40,800

As a comparison, the cost of New Zealand Superannuation for 2014/15 is $11,589 million.[43]

Similar schemes in other countries

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See also

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References

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  1. ^ "KiwiSaver Annual Report 2023" (PDF). Financial Markets Authority (NZ). 20 September 2023. Retrieved 13 May 2024.
  2. ^ "KiwiSaver changes in the 2014 tax year".
  3. ^ Self-employed – your guide to KiwiSaver KS12. Inland Revenue Department. Retrieved 31 May 2012.
  4. ^ "KiwiSaver".
  5. ^ http://www.kiwisaver.govt.nz/already/change-contrib/stop-contrib/ KiwiSaver – Change or stop contributions
  6. ^ a b "Budget 2015: 10 things you need to know". The New Zealand Herald. 21 May 2015. Retrieved 18 April 2018.
  7. ^ "KiwiSaver". ird.govt.nz. Archived from the original on 13 May 2007.
  8. ^ The Dominion Post: local, national & world news from Wellington's daily newspaper Archived 31 July 2012 at archive.today. Dominion.co.nz (18 September 2007). Retrieved 19 August 2011.
  9. ^ "KiwiSaver member demographics". Inland Revenue. Retrieved 21 November 2021.
  10. ^ "What types of investment funds are available?". Inland Revenue. Retrieved 7 June 2014.
  11. ^ "Fund types – Must-knows of KiwiSaver – Sorted". Commission of Financial Literacy and Retirement Income. Retrieved 29 May 2014.
  12. ^ Stock, Rob (17 April 2016). "Property Industries Global Women Money Small Business Innovation Farming World Opinion & Analysis KiwiSaver should have 'ingredients' label". Stuff. Retrieved 7 October 2017.
  13. ^ Stock, Rob (23 August 2015). "Property Industries Global Women Money Small Business Innovation Farming World Opinion & Analysis KiwiSaver, cluster bombs, mines and nukes". Stuff. Retrieved 7 October 2017.
  14. ^ Stock, Rob (8 September 2016). "No police action on KiwiSaver cluster munitions, weak law blamed". Stuff. Retrieved 7 October 2017.
  15. ^ Clement, Diana. "KiwiSaver with a conscience". CANSTAR.co.nz. Retrieved 7 October 2017.
  16. ^ "Ethica" (PDF). Retrieved 7 October 2017.
  17. ^ "The ethical KiwiSaver scheme for Christians". koinonia.org.nz. Retrieved 7 October 2017.
  18. ^ "Sustainable International Share Fund: Responsible Investment Policy" (PDF). ANZ. Retrieved 7 October 2017.
  19. ^ Twose, Helen (21 February 2016). "KiwiSaver: How sick do you have to be?". The New Zealand Herald. Retrieved 7 October 2017.
  20. ^ "KiwiSaver HomeStart Grant". MoneyHub. June 2018.
  21. ^ "Key signals 'modest changes' to KiwiSaver". National Business Review. NZPA. 9 July 2008. Retrieved 13 October 2011.
  22. ^ "Ministers Take Single Market Forward, Sign Up To Trans-Tasman Retirement Savings Portability". Australian Treasury. Archived from the original on 23 September 2009. Retrieved 23 December 2011.
  23. ^ Labour backs universal savings scheme. 3 News NZ. 10 October 2013.
  24. ^ FSC wants KiwiSaver contributions at 7pc. 3 News NZ. 14 October 2013.
  25. ^ "Govt considers KiwiSaver 'mass auto-enrolment'". Radio New Zealand. 29 May 2015. Retrieved 6 June 2015.
  26. ^ Perinpanayagam, Umesh (December 2014). "Kiwisaver". Foreign Control Watchdog (137). Campaign Against Foreign Control of Aotearoa. Retrieved 3 November 2016.
  27. ^ Orenstein, Mitchell A. (2008). Privatizing Pensions: The Transnational Campaign for Social Security Reform. Princeton University Press. ISBN 978-0-6911-3697-4.
  28. ^ "Stop the Billion Dollar Kiwisaver Rort, Introduce Kiwifund". Business Scoop. Press Release – New Zealand First Party. 30 June 2016. Retrieved 3 November 2016.
  29. ^ "KiwiSaver". Become Wealth. Retrieved 13 August 2024.
  30. ^ "The drawbacks of KiwiSaver". Stuff. Stuff. Retrieved 14 August 2024.
  31. ^ "Key concedes value in slicing KiwiSaver fees". Otago Daily Times. 8 November 2011. Retrieved 7 October 2017.
  32. ^ Cheng, Derek (8 November 2011). "PM concedes value in slicing KiwiSaver fees". The New Zealand Herald. ISSN 1170-0777. Retrieved 3 November 2016.
  33. ^ Rt. Hon. Michael Cullen and Hon. Peter Dunne (30 August 2007). "KiwiSaver take-up figures take off". Scoop. Retrieved 30 August 2007.
  34. ^ "Nearly 130,000 people signed up to KiwiSaver". Radio New Zealand. 30 August 2007. Archived from the original on 13 February 2012. Retrieved 30 August 2007.
  35. ^ Nikiel, Christine (27 October 2007). "KiwiSaver 'could become compulsory'". The New Zealand Herald. Retrieved 13 October 2011.
  36. ^ "More than 300,000 join KiwiSaver". The New Zealand Herald. NZPA. 6 December 2007. Retrieved 13 October 2011.
  37. ^ "KiwiSaver numbers closing in on 700,000 Archived 6 October 2008 at the Wayback Machine". KiwiSaver press release 18 June 2008.
  38. ^ "KiwiSaver annual statistics". Inland Revenue (New Zealand). Retrieved 14 December 2014.
  39. ^ "Estimated Resident Population by Age and Sex (1991+) (Annual-Jun)". Statistics New Zealand. Retrieved 10 October 2016.
  40. ^ "KiwiSaver Annual Report 30 June 2014 – 30 June 2015" (PDF). Financial Markets Authority. Retrieved 6 October 2015.
  41. ^ "KiwiSaver Annual Report 30 June 2015 – 30 June 2016". Financial Markets Authority. Retrieved 10 October 2015.
  42. ^ "KiwiSaver Annual Report 30 June 2016 – 30 June 2017" (PDF). Financial Markets Authority. Retrieved 22 April 2019.
  43. ^ "Vote Social Development – Budget 2015" (PDF). New Zealand Treasury. Retrieved 6 June 2015.
  44. ^ Agency, Canada Revenue (11 October 2005). "Registered Retirement Savings Plan (RRSP) – Canada.ca". www.canada.ca. Retrieved 10 October 2018.
  45. ^ "KiwiSaver – KiwiSaver". www.kiwisaver.govt.nz. Retrieved 10 October 2018.
  46. ^ "MPFA". www.mpfa.org.hk. Retrieved 10 October 2018.
  47. ^ "CPFB Members Home". www.cpf.gov.sg. Retrieved 15 October 2018.
  48. ^ "KWSP – Home – KWSP". www.kwsp.gov.my (in Malay). Retrieved 15 October 2018.
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