KEY POINTS:
Q. I I have been hearing a lot about the new KiwiSaver scheme. My employer already has a superannuation scheme but I read that I can still join a KiwiSaver scheme if I want to. What benefits would there be for me doing this if my employer has its own scheme already?
A. The new KiwiSaver Act comes into force on July 1 this year. The Act provides for KiwiSaver schemes to be set up by private providers. You are correct that from July 1, you will be able to join a KiwiSaver scheme, even if your employer has a superannuation scheme already, so long as you meet the eligibility criteria.
New employees must be automatically enrolled in a KiwiSaver scheme but you are an existing employee.
This means you won't be automatically enrolled in a scheme. But you can still 'opt in' to a scheme, even though your employer has its own superannuation scheme already.
If you tell your employer you want to opt in to a KiwiSaver scheme, your employer must make arrangements to enroll you in a scheme and make deductions from your pay for your scheme contributions.
You can choose which scheme you want to join, or you can join one your employer selects for you.
If no choice is made, you will be enrolled in one of the Inland Revenue 'default' schemes.
The benefits of joining a KiwiSaver scheme will depend largely on your financial situation. You will need to compare KiwiSaver to your employer's own superannuation scheme to assess which one will give you more benefits.
Generally, the benefits of joining a KiwiSaver scheme are that the Government will contribute $1000 towards your KiwiSaver account from the outset. It will subsidise your KiwiSaver account fees. You may also be able to benefit from a government first home deposit subsidy of $1000 per year of membership, capped at $5000. To get this first home deposit subsidy, you must be a member of a KiwiSaver scheme for at least three years.
There is a further possible benefit. Your employer is able to contribute to your KiwiSaver account itself up to a maximum of the amount of your personal contributions or four per cent of your gross earnings (whichever amount is less).
If your employer does this, the amount it contributes is not subject to Specified Superannuation Contribution Withholding Tax.
Effectively, this means you can receive some money from your employer tax-free.
This tax-free opportunity gives you a chance to negotiate with your employer. For example, you could offer to sacrifice some of your salary on the understanding that your employer will contribute that amount to your KiwiSaver account instead and the amount will be tax-free.
Or you could ask your employer to contribute some or all of your next pay rise to your KiwiSaver account.
This tax break is also available to some registered superannuation schemes that are not KiwiSaver schemes. So you should check whether you and your employer can use this tax break for your employer's existing superannuation scheme.
In short, you can join a KiwiSaver scheme if you wish to. It may be beneficial for you to do so.
The benefits are likely to depend on your financial situation and the terms of your employer's existing superannuation scheme.
* Rani Amaranathan is a solicitor in the employment team of transtasman law firm, DLA Phillips Fox.
