How the New Zealand Kiwi Saver system works

[Brendan Burgess]

Summarised from
https://www.kiwisaver.govt.nz/



1) The employer contributes 3% of your salary
2) You must contribute 3% of your salary
3) You can contribute 4% instead of 3% ( I have seen 8% mentioned as well.)
4) Revenue contributes 50% of your contributions subject to a maximum of $500 per annum i.e. 50% of $1,000 contributed by the employee
5) On retirement, you take the whole lot as a lump-sum tax free.

• No tax
• No obligation to buy an annuity

6) You can withdraw the whole fund early to buy your first home
7) After buying your first home, you can take a contribution holiday to focus on repaying your mortgage


So let’s look at an example of someone earning $30,000

After 5 years, you would have accumulated $13,000 (+/- investment return and costs) which could be withdrawn and used to buy a house.



Automatic enrolment

Your employer automatically enrols you if you don’t have a company pension scheme and if you are at least 18 years of age

You can only opt out in a short window of between two weeks and 8 weeks of starting a job.

If you don’t opt out then, you can never opt out in the future.

After you opt out, you will no longer get employer contributions or tax credits.



Taxation

The Kiwi fund is subject to the normal NZ taxes on investments which I think is a flat rate of 33% on income and gains.

 

[Brendan Burgess]

Questions

1) Apart from the NZ equivalent or our OAP, is that it? Do employers have separate, more generous pension schemes?
2) To benefit from the $500 tax credit, you have to contribute $1,000 so I could see why low paid people would contribute more than 3% to maximise this contribution. But why would anyone earning over $33,000 contribute more than 3% voluntarily?
3) What happens when people emigrate?

 

[Brendan Burgess]

Review and comparison with Ireland

1) It has the merits of simplicity
2) The fact that people can access their employers' contributions and the tax credits to buy a house must be a huge incentive to participate.
3) The tax credits are very low compared to Ireland. If I contribute €10,000 to a pension in Ireland, I get about €4,000 tax relief/deferral. If I contribute €10,000 in NZ, I get €500 tax credit.
4) The investment returns are taxed
5) It's not taxed on the way out.