KiwiSaver Changes from 1 April 2009
- The minimum employee contribution will reduce to 2% of your gross pay.
- The compulsory employer contribution (CEC) will increase to 2% and won't increase further in future years.
- Any voluntary employer contributions you receive will be liable for employer superannuation contribution tax (ESCT).
- The fee subsidy will be removed.
- The KiwiSaver Act has been amended and the Employment Relations Act amendment relating to KiwiSaver has been repealed so KiwiSaver employer contributions must be paid in addition to an employee's gross salary and wages, unless through good faith bargaining employers and employees agree otherwise. For more information, see the Department of Labour fact sheet.
If you're already a member of KiwiSaver you'll be able to reduce the amount you contribute from your pay to 2% from 1 April 2009.
If you want to reduce your contribution, you'll need to let your employer know in writing. Either complete a new KiwiSaver deduction form (KS2) or write to your employer.
If you're a new member and you don't tell your employer how much you want deducted from your pay, we'll assume you want to contribute 2%.
Your employer will increase their contribution to 2% (and won't increase it any further) from 1 April - you won't need to do anything.
If your employer makes voluntary contributions to your KiwiSaver account, from 1April2009 they'll have to pay tax on the voluntary portion. This means there may be less money going in to your KiwiSaver account.
Voluntary employer contributions include any contributions:
- over and above the compulsory employer contribution rate
- to employees aged under 18 or over 65 years old (and who have been a member for more than five years), or
- to employees on a contribution holiday.
Reducing your contribution to 2% may affect the amount of member tax credit you receive.
Depending on your income, if you do reduce your contribution to 2% it may affect how much member tax credit (MTC) you receive.
If you're eligible, the Government will pay into your KiwiSaver scheme an annual member tax credit matching your contributions up to $1,042.86 per year (this works out to about $20 per week). If you reduce your contribution to 2% of your gross pay, you might not contribute enough to your KiwiSaver scheme to receive the maximum member tax credit. You can make voluntary contributions to your KiwiSaver account so that your contributions total $1,042.86 each year.
If your income is... | Then your annual KiwiSaver contributions at 4% of your gross pay are... | Voluntary contributions required to reach $1,042.86 | Annual KiwiSaver contributions at 2% of your gross pay | Voluntary contributions required to reach $1,042.86 |
$15,000 | $600 | $442.86 | $300 | $742.86 |
$26,000 | $1,040 | $2.86 | $520 | $522.86 |
$35,000 | $1,400 | $700 | $341.86 | |
$45,000 | $1,800 | $900 | $142.86 | |
$52,000 | $2,080 | $1,040 | $2.86 |
If your income is less than $52,000 and you reduce your contributions to 2% of your gross pay, you'll need to make voluntary contributions if you want to receive the maximum member tax credit.
If your income is more than $52,000 you can reduce your contributions to 2% of your gross pay and you'll still receive the maximum member tax credit.
Reducing your contributions to 2% may also affect mortgage diversion
Mortgage diversion allows you to split your KiwiSaver contributions - up to half towards repaying the mortgage on your home and the rest to your KiwiSaver savings. So if you're contributing less to your KiwiSaver scheme, there'll be less available to divert to your mortgage.
The $40 annual fee subsidy will be removed from 1April2009.
This subsidy was paid by the Government to help you cover the cost of fees charged by your scheme provider. To find out more about the fees charged to your KiwiSaver account, you should check directly with your scheme provider or seek independent financial advice. The Retirement Commission's sorted website has a KiwiSaver fees calculator.
You can keep track of your KiwiSaver scheme by registering for Manage my KiwiSaver.
Find out more about KiwiSaver or visit the website of your scheme provider.
- The minimum employee contribution rate will reduce to 2% of a member's gross pay.
- The compulsory employer contribution (CEC) will increase to 2% and won't increase further in future years.
- Any voluntary employer contributions you make will be liable for employer superannuation contribution tax exemption (ESCT).
- The employer tax credit (ETC) will be removed.
- The fee subsidy will be removed - this change affects KiwiSaver members, not employers.
- The KiwiSaver Act has been amended and the Employment Relations Act amendment relating to KiwiSaver has been repealed so KiwiSaver employer contributions must be paid in addition to an employee's gross salary and wages, unless through good faith bargaining employers and employees agree otherwise. For more information, see the Department of Labour fact sheet.
You'll need to increase your employer contribution rate to 2% from 1April2009, but won't be required to contribute more than this amount in future years unless you want to. You'll need to increase your employer contribution through your payroll provider or through your payroll system.
You may need to reduce the contribution rates for existing KiwiSaver employees if they notify you that they would like to change their contribution rate to 2%. You'll need to do this through your payroll provider or through your payroll system. You should ask your staff for written confirmation of their intention to reduce their contribution rate - ask them to complete a new KiwiSaver deduction form (KS2) or to write to you. There is no need to contact us.
New employees who join and are automatically enrolled after 1April2009 and who don't tell you how much they want deducted from their pay will have a default rate of 2% deducted from their gross pay.
After 1April2009 you’ll be liable to pay ESCT on any voluntary employer contributions you make.
Voluntary employer contributions include any contributions you make:
- over and above the compulsory employer contribution rate
- to employees aged under 18 or over 65 years (and who have been a member for more than five years), or
- to employees on a contribution holiday.
ESCT can be taxed in one of the following ways:
- at a flat rate of 33 cents in the dollar, or
- at an optional ESCT rate based either
- on the annual gross salary or wages plus gross employer contributions paid to the employee in the previous standard tax year (where the employee was employed for all of that year), or
- on an estimate of the total amount of gross salary or wages plus gross employer contributions that the employee will earn in the year ahead (where the employee was not employed for all of the previous tax year), or
- treat your employer contribution as salary or wages, for which you'll need the agreement of your employee.
ESCT must be paid to Inland Revenue along with PAYE deductions on the Employer deductions (IR345) form.
ESCT is not included on the Employer monthly schedule (IR348). The amount shown as total KiwiSaver employer contributions on the EMS is the net amount - the gross employer contribution less ESCT. The following examples show what should be reported on the IR345 and what should be reported on the EMS (IR348).
Examples:
Example 1: Employer contribution of 2%
Eddie is a KiwiSaver member and employed by ABCLimited. He is having 4% of his salary and wages deducted as an employee contribution and ABCLimited contributes 2%.
Eddie's weekly salary is $900.
KiwiSaver deduction | $36.00 |
Employer contribution | $18.00 |
Total savings | $54.00 |
From 1April2009, as ABC Limited is making employer contributions at the required rate of 2% it isn't liable for ESCT.
Example 2: Employer contributions of more than 2%
Joanne is a KiwiSaver member employed by Black Limited. Joanne has 4% of her salary and wages deducted as an employee contribution and Black Limited has agreed, as part of her wage negotiations, to match the employer contributions dollar for dollar. So Black Limited is contributing 4% as employer contributions.
Joanne's weekly salary is $1,200. Currently she is saving:
KiwiSaver deduction | $48.00 |
Employer contribution | $48.00 |
Total savings | $96.00 |
From 1April2009, as Black Limited is making employer contributions at more than the required rate, it will have to pay ESCT on the voluntary amount. So, for the purposes of calculating the ESCT, the savings are:
KiwiSaver deduction | $48.00 |
Employer contribution (compulsory 2%) | $24.00 |
Employer contribution (voluntary 2%) | $24.00 |
Total savings | $96.00 |
Black Limited is liable for ESCT on the 2% voluntary portion, $24.00. Using the first payment option (a flat rate of 33 cents in the dollar), ESCT is calculated as:
Ratio percentage = [residual income from previous year, $24.00 x $0.33 = $7.92 - ESCT to pay. The voluntary employer contribution for Joanne is: |
The amount of Joanne's savings would be:
KiwiSaver deduction | $48.00 |
Employer contribution (compulsory 2%) | $24.00 |
Employer contribution (voluntary 2%) | $16.08 ($24 less ESCT) |
Total savings | $88.08 |
Black Limited should also account for the $7.92 on its Employer deductions form (IR345) form for ESCT and account for $40.08 on its EMS (IR348) as KiwiSaver employer contributions
Example 3: Locked-in employment agreements
In some cases, where an employer is 'locked-in' to an agreement with an employee for a set percentage of employer contributions, in order to meet the terms of that agreement, the amount of employer contributions may need to be grossed-up to ensure that the employee receives their full entitlement.
Speedy is employed by 19 Limited. He is a member of KiwiSaver and his current employment contract requires 19 Limited to contribute towards his KiwiSaver savings at a rate of 4% (matching his own contributions of 4%).
Speedy earns $2,500 gross per week or $130,000 per annum. His weekly savings are:
KiwiSaver deduction | $100.00 |
Employer contribution | $100.00 |
Total savings | $200.00 |
As 19 Limited is making employer contributions at more than the required rate it will have to pay ESCT on the voluntary amount. So, for the purposes of calculating the ESCT, the savings are:
KiwiSaver deduction | $100.00 |
Employer contribution (compulsory 2%) | $50.00 |
Employer contribution (voluntary 2%) | $50.00 |
Total savings | $200.00 |
19 Limited is liable for ESCT on the 2% voluntary portion of $50.00.
As 19 Limited has agreed contractually to contribute 4%, not 4% less ESCT, it must now gross-up its voluntary employer contribution so that Speedy retains the full 4%.
Using the first payment option (a flat rate of 33 cents in the dollar), ESCT = 0.33 / (1 -0.33) x $50.00 = $24.63 |
The gross superannuation contribution of $124.63 is calculated by adding the employer contribution amount received by the scheme provider, $100.00, and ESCT on that amount, $24.63.
ESCT is deducted from the grossed-up contribution, leaving Speedy with net savings of $100.00.
The employer contribution amount 19 Limited should include on its EMS (IR348) is $100.00 ($50.00 compulsory contribution plus $50.00 voluntary contribution in accordance with Speedy’s employment agreement). It should include the grossed-up ESCT amount of $24.63 on the IR345.
If you’ve already chosen to contribute more than 2% into your KiwiSaver employees' accounts and would like to reduce that contribution back to the new compulsory employer contribution rate of 2%, you may need to re-negotiate contractual arrangements with your employees.
The employer tax credit (ETC) you've been receiving from the government will be removed from 1April2009. You'll continue receiving the employer tax credit up until that time.
No decision has been made about the proposed ETC square-up. The square-up has been proposed to ensure all employers receive their full $20 a week ETC entitlement for the year ending 31March2009. The square-up proposal is currently included in a bill that is before the Finance and Expenditure Committee.
The Minister of Revenue has made a recommendation to the Finance and Expenditure Committee that the proposed square-up no longer goes ahead given the recent repeal of the employer tax credit and the compliance costs associated with doing the square-up for one year.
The Inland Revenue and KiwiSaver websites will be updated from 1 April, and all our KiwiSaver publications will be updated and available online during the first week of April.
Many of the KiwiSaver forms and guides you currently have to give out to new employees will be out of date from 1April2009. You'll be able to print up to date KiwiSaver forms and guides from our website from 1 April, or you can order printed copies by ringing 0800257773.
Please note that the KiwiSaver Employer guide (KS4) will not be available online until 6 April and you won't be able to order a printed copy until the end of April. This is to ensure the KS4 includes the recently announced tax changes for small and medium-sized businesses that are expected to be enacted around 31March2009.
If you're unsure whether the information you're giving employees is up to date, check the Inland Revenue or KiwiSaver websites closer to 1April2009, or call us on 0800KIWISAVER (0800549472).
We'll be communicating directly with all employers before 1 April explaining in more detail what the changes are and what they mean for you.
Find out more about KiwiSaver or visit the KiwiSaver for employers section on our website.