KEY POINTS:
Employers are lining up at seminars to find out how to operate the new KiwiSaver superannuation scheme - but are reacting with "disbelief" when they realise how quickly it will affect them when it starts on July 1.
About 230 employers turned up to a seminar run by Employers and Manufacturers Association advisory services manager David Lowe on the North Shore on Tuesday, a further 50 in Rotorua on Wednesday and 100 at Auckland Airport yesterday.
"It's an angry crowd out there," Mr Lowe said yesterday. "The cost is one issue but it's actually the terrible timing [of last week's Budget changes] five weeks out from the start.
"Budgets are already drawn up, salary reviews are already done. I spoke to one employer who signed a collective agreement for a three-year term on the morning of Budget day and the union is not wanting to revisit it.
"Anger is the word I'm using. I think a better word is disbelief at the incredibly poor timing."
Until the Budget last week, employers thought that all they had to do was to hand out KiwiSaver information packs to new employees, let them choose a KiwiSaver provider and then deduct their KiwiSaver contributions from their wages and forward them to Inland Revenue along with their taxes.
Now, from next April, they will have to start matching their employees' contributions - initially at 1 per cent of their wages, then at 2 per cent from April 2009, 3 per cent from 2010 and 4 per cent from 2011.
The Government will pay them a matching subsidy of up to $20 a week for every employee.
This will generally cover their costs for the first year, but by 2011, when they will have to pay 4 per cent of their employees' incomes into KiwiSaver, they will have to bear the full costs themselves for all earnings above $500 a week.
We run a small to medium-sized company with seven employees. My question is where to place the investment dollars for KiwiSaver on behalf of our great staff? I read of "default companies" but cannot yet find a reference to proven track record companies that will produce the goods for long-term investors. I assume it is the employer that makes the decision on behalf of staff?
Mr Lowe says employers do not have to choose a preferred KiwiSaver provider for their staff and he advises them not to do so because employees might blame them if their preferred provider earns less than other KiwiSaver funds.
"If you choose a super scheme for your employees, you are not protected by the KiwiSaver Act from liability for your choice," he says. "The employee would have to show negligence on your part, not just bad luck, but nevertheless you could be liable."
He says employers should choose a preferred provider only if they already have a company super scheme with a provider who offers a KiwiSaver option as part of the scheme.
Otherwise, he advises employers to simply hand out the information pack which they should receive from Inland Revenue soon and advise their employees to either accept one of the six "default providers" or seek guidance on alternative schemes from their bank or another financial adviser.
The default providers are all required to have relatively safe investment policies weighted towards fixed-interest deposits rather than risky areas such as property or shares.
"In all fairness, all KiwiSaver providers have no track record because they are all brand new," Mr Lowe says.
"But the parent companies of most of them are well known. Most people will go to a default fund manager to start with and will take their time to choose another one if they want to later."
For people in secondary jobs or self-employed in two businesses, can they contribute from both businesses?
Yes. You can only have one KiwiSaver account but you can contribute from any number of jobs and if you pay in at least 4 per cent of your income from all of them, your employers will all have to pay in 4 per cent too (from 2011).
I have two jobs, one permanent and one casual, each of between seven and 16 hours a week. What are my options for KiwiSaver?
Casual employment is still employment and you can opt to pay 4 per cent or 8 per cent of your earnings from each job into KiwiSaver and your employers will have to pay 4 per cent too (from 2011).
However, employers are not required to enrol new casual employees in KiwiSaver automatically. Under the KiwiSaver Act passed last September, they have to enrol new casual workers only after they have worked for them for 28 continuous working days.
Only eight months after the act was passed, the Budget has signalled that it will be changed again to abolish the 28-day rule and exempt all casual employees from automatic enrolment in KiwiSaver from next April 1.
"Casual employment" will be defined by reference to the Holidays Act as employment that is "intermittent and irregular".
It will then be up to casual employees to enrol in KiwiSaver themselves if they wish to. The scheme is voluntary, so you could opt to pay in only from one job, or not at all. But if you opt out, you miss out on your employer's contribution and potentially on the Government subsidy of up to $20 a week.
I work as a temp for a number of employment agencies in Auckland. How will KiwiSaver affect me?
Steve Kennedy, of temping agency Kelly Services, says temps are employed by the agency, not by the client companies where they work, so they will be able to join KiwiSaver through the agency.
The agency will have to match their contributions at 4 per cent of their pay (from 2011).
However, temps will generally be classed as "casual" employees, so the agency will not have to enrol new temps in KiwiSaver automatically unless they work for the agency for more than 28 continuous working days between July 1 this year and next April. Temps may then need to opt in themselves.
If somebody earns less than $500 a week but makes up for it by contributing to the KiwiSaver scheme from other sources, will the Government match the total contribution or just the contribution made from the salary?
The Government will match all your contributions from all sources up to the maximum subsidy of $20 a week.
How does a tax-exempt non-profit organisation receive the equivalent employer contribution tax credit?
Tax-exempt charities have to pay the employer contributions of 4 per cent (from 2011) to their employees' KiwiSaver accounts, just like any other employers.
They also get the Government subsidy to employers of up to $20 a week for each employee, which is paid as a tax credit through the PAYE system. Although charities do not pay company tax, they pass on PAYE taxes deducted from their employees' wages to Inland Revenue just like other employers.
Can a contributions holiday be taken at any time, or are there conditions attached?
You can apply to Inland Revenue for a contributions holiday of up to five years after you have been paying into KiwiSaver for at least a year, or sooner if you experience "financial hardship".
You do not have to claim financial hardship or cite any other cause to take a contributions holiday. It will be granted automatically.
At the end of five years, you can apply to extend the holiday for up to another five years and so on indefinitely. If you take a holiday from contributions from your wages or salary, your employer also stops paying in his contributions.
If you take a complete holiday and stop paying in even occasional contributions in any tax year up to March 31, you will also lose the Government subsidy of $1040 ($20 a week), which is paid at the end of each tax year.
I am going on maternity leave in September. Can I start a KiwiSaver account and then take a "break" while I am on leave or is it probably better to wait until I get back? Ideally, I would like to start straight away as I would get a year of whatever interest earned on my contribution, and the Government's contribution.
Yes, you can take a contribution holiday while you are on leave. So yes, you probably are better to start now, collect the Government's $1000 "kick-start" and subsidy of $20 a week, and see that money earn interest while you're on leave.
I am in fulltime employment but will be resigning next March to do a one-year fulltime study course and after that will be mainly self-employed. What are the ramifications regarding KiwiSaver? Is it likely to be worth joining and can I stop contributions for a period - at least while doing the fulltime study course?
Yes, as for the previous questioner, it's worth joining KiwiSaver when it starts on July 1 to collect the Government's $1000 kickstart and $20-a-week subsidy, and then watch the interest accumulate while you take a contribution holiday to do the course.
You can start contributing again when you start earning money from self-employment.
As a self-employed person you are not bound by the minimum contribution of 4 per cent of your income - you can contribute whatever sum you agree to with your KiwiSaver provider, and the Government will match your contributions up to $20 a week.
If I join KiwiSaver, then after say two years I leave the NZ workforce for three years and suspend the KiwiSaver account (maybe on OE, maybe living in NZ off investments), then what would I be entitled to at 65 if I never work again? Do I get the full balance that accrued during my first two years of contribution (my own contribution, plus employer and Government)? Also would I be able to keep paying into KiwiSaver while working overseas?
Yes, when you reach 65 you get the full value of what you, your employer and the Government put in during those two years and the accumulated earnings on that money over the intervening years. You can also keep paying into your KiwiSaver account while overseas if you choose to.
