Budget 2005: Q&A for KiwiSaver scheme

The KiwiSaver scheme, announced in today's budget as part of the Securing Your Future package, is aimed mainly at helping people save for retirement.

But first home buyers will be able to withdraw their funds for a deposit on a house and would then be able to divert fund payments into repaying their mortgage.

KiwiSaver will be voluntary, with people able to put four or eight per cent of their gross salary automatically into a savings fund.

Savers will have personalised accounts they can take with them as they shift jobs.

Questions and answers provided by the Government about KiwiSaver:

Q. Who is eligible to join?

A. From April 2007, employees aged 18 and over will be automatically enrolled when they begin a new job, but have the opportunity to opt out. Existing employees will be able to opt into the scheme but will not be automatically enrolled by their employer. Employees under 18 and non-employees, such as the self-employed and beneficiaries, will be able to opt in to the scheme.

* * *

Q. What is the expected participation rate?

A. Officials assume up to 25 per cent of the eligible labour force may have joined the scheme after it has been running five years. But it is difficult to predict.

* * *

Q. What will the government contribution be?

A. An upfront contribution per KiwiSaver account holder of about $1000. The government also plans to negotiate fee levels and to fund ongoing fees up to a cap.

The home ownership deposit subsidy will equate to $1000 per year of savings in the KiwiSaver, with a minimum of three years and maximum of five years -- i.e. $3000 to $5000.

* * *

Q. How will the four per cent and 8 per cent rate be calculated and what sort of amounts does it represent?

A. They will be based on an employee's salary or wages before tax. This includes salary or wages and other employment-related allowances such as sums receivable by way of bonus, commission, extra salary, gratuity, overtime or other remuneration of any kind.

For an income of $10,000, the weekly contribution would be $8 at the four per cent rate or $15 at the eight per cent rate. For an income of $50,000 the weekly contribution would be $38 or $77.

* * *

Q. How will members of existing superannuation schemes be affected?

A. Existing schemes can continue to operate as they have done until now. The trustee and members of any existing registered superannuation scheme will have the option, if they wish, to convert to KiwiSaver, subject to meeting the KiwiSaver criteria. If they convert, members will be eligible for the government contribution to KiwiSaver.

If an existing scheme does not covert, its members may choose to open a KiwiSaver account in addition to, or instead of, their existing scheme.

Members of existing government schemes such as the State Sector Retirement Savings Scheme and Government Superannuation Fund will not automatically be entitled to the government contributions.

* * *

Q. Will the money be protected?

A. KiwiSaver products will be regulated consistently with other superannuation products. Only approved providers will be able to participate in KiwiSaver. The government does not guarantee any individual scheme.

* * *

Q. How will home buyers be affected?

A. KiwiSaver will provide an ability for participants to make a one-off withdrawal of their own savings to use for the purchase of a first home (excluding the initial government contribution), following a minimum of three years participation.

It will also provide a deposit subsidy to people who have contributed to KiwiSaver for at least three years to assist with the purchase of their first home. This will be $1000 for each year of contribution, up to a maximum of five years. Regional house price caps and household income caps will be used to target this assistance.

* * *

Q. Which existing schemes will be eligible for the housing deposit subsidy?

A. Members of existing retirement superannuation schemes whose employers have an exemption from the automatic enrolment provision will also be eligible for the deposit subsidy if they save for a minimum of three years from April 1, 2007.

* * *

Q. Will the housing deposit subsidy drive up house prices?

A. The deposit subsidy is expected to be taken up by around 3000 households a year, which is a small proportion of the total houses purchased in New Zealand each year. Therefore the subsidy is not expected to have a significant effect on house prices. However, as the subsidy will not become available until 2010, it is difficult to predict how it and other factors will influence house prices after that date.

* * *

Q. What about the self-employed?

A. Self-employed people will be able to contribute by making voluntary payments directly to Inland Revenue. Those wanting to access the housing deposit subsidy must meet the same criteria as salary and wage earners.

* * *

Q. Do employers have to contribute to the savings of their employees?

A. No, but employers can choose to contribute. Employers will have flexibility to determine most of the terms and conditions attached to their contributions.

* * *

More information is available on the website www.securingyourfuture.govt.nz. For questions about KiwiSaver go to www.ird.govt.nz or ring Inland Revenue on 0800 SAVE4ME (0800 728 346).

- NZPA