Proposed amendments to KiwiSaver Act 2006
Based on recommendations made by the Retirement Commissioner in December 2016, the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Bill (Bill) proposes several amendments to the KiwiSaver Act 2006 (KiwiSaver Act).
A link to the Bill is available here.
Who needs to read it?
These proposed amendments are relevant to all KiwiSaver scheme providers, supervisors, financial advisers and scheme members.
When does it apply?
It is proposed that:
- From 1 April 2019, new additional contribution rates of 6% and 10% will be introduced. The name of “contributions holiday” will also be changed to “savings suspension” and the maximum “contributions holiday” will be reduced to one year.
- From 1 July 2019, people over 65 will be allowed to join the scheme and the five year KiwiSaver lock-in period (which currently affects 60-65 year olds) will be removed.
What does it cover?
The Bill proposes to amend the KiwiSaver Act to improve the effectiveness of KiwiSaver in helping New Zealanders save for their retirement.
- New contribution rates: Currently the contribution rates are 3%, 4%, or 8% of members’ gross salary and wages. It is proposed section 64 of the KiwiSaver Act be amended to introduce additional 6% and 10% rates of which employees can choose to contribute. This allows KiwiSaver members greater flexibility to select a contribution rate that best aligns with their circumstances and retirement savings goals.
- Renaming and reducing the maximum contributions holiday: It is proposed that all references to “contributions holiday” be replaced with “savings suspension” to more accurately describe the effect of suspending contributions. In addition, it is proposed that section 104(3)(b)(i) of the KiwiSaver Act be amended so the maximum permitted contributions holiday period is reduced from five years to one year. This change will only apply to contributions holiday applications made after the change comes into effect; therefore existing contributions holidays will not be affected.
- Allowing over 65 year olds to join KiwiSaver: The law does not currently permit over 65 year olds to join KiwiSaver. It is proposed section 33(a) of the KiwiSaver Act is repealed. This would give over 65 year olds the benefit of access to managed funds by way of opting-in to KiwiSaver.
- Removing the lock-in period: Members are currently eligible to withdraw their savings when the member reaches the New Zealand Superannuation qualification age (which is currently 65 years old). The purpose of the lock-in period was to prevent people in the 60-65 age bracket from joining KiwiSaver to receive the $1,000 kick-start payment. However, the kick-start was repealed as part of the Budget 2015, therefore the lock-in period is no longer necessary.
These changes are useful improvements to the KiwiSaver regime to encourage members to make greater provision for their retirement. KiwiSaver providers, supervisors and administrators will need to consider what changes may be required, in particular to scheme disclosure documents, if the proposed Bill is enacted.
If you have any questions in relation to these recent amendments to the KiwiSaver Act, please contact one of our experts.