Basic Operation
Employee participants can choose to contribute 2%, 4% or 8% of their gross pay, and can switch rates three months after setting a rate (unless employers agree to a shorter time frame). The self-employed and unemployed can choose how much they want to contribute. While most KiwiSaver schemes have minimum contribution amounts for people in this category, several schemes allow any level of contributions. All New Zealanders aged 18–65 starting a new job, with some exceptions, are automatically enrolled in KiwiSaver, but can choose to opt out from day 14 to day 56 of their employment.
Participants choose to put their savings in one of several "approved savings schemes" with varying degrees of expected risk and return. They can only belong to one scheme at a time, but can change schemes at any time. If they do not choose a scheme, they will be assigned either to the employer's default fund or to a government-selected default fund.
When a person joins they receive a $1,000 tax-free "kick start" to their savings account from the government. They also receive a "tax credit" (a payment from IRD) of up to $1,042.86 p.a., and potentially a first-home deposit subsidy. From 1 July 2011 the tax credit is reduced to a maximum of $521.43 for a member contribution of at least $1042.86. (http://www.kiwisaver.govt.nz/new/benefits/mtc/)
KiwiSaver contributions can only be accessed in the following circumstances:
- reaching retirement age or after five years as a member of KiwiSaver (if over the age of 60)
- a one-off withdrawal after three years to help in the purchase of the first home
- serious illness
- significant financial hardship
- absence from New Zealand for 12 months
From 1 April 2008 employers have to make matching contributions starting at a minimum of 1% of the employee's gross salary and increasing by 1% each year. Under the original scheme, the employer's contribution peaked at 4% on 1 April 2011. The Fifth National Government's Taxation (Urgent Measures and Annual Rates Bill), passed under urgency on 11 November 2008, reduced the employer contribution to 2% and also allowed employees to drop their contribution to the same level.
Read more about this topic: Kiwi Saver
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