KiwiSaver

10 July 2007

KiwiSaver.
Thank you for your letter of the 5 June 2007 in which in whichyou asked several questions about KiwiSaver
I am pleased to have the opportunity to explain the KiwiSaver scheme.
KiwiSaver has been designed to make it easy for New Zealanders to develop a long-term savings habit.
You will be aware that in Budget 2007 I announced significant enhancements to KiwiSaver - broadly a new system
of tax credits and compulsory matching employer contributions for KiwiSaver and complying superannuation funds,
Briefly, the enhancements are:

from 1 July 2007, contributions to KiwiSaver or a complying superannuation fund (by members aged between 18 and 65)
will be matched by a tax credit of up to $20 per week paid directly into their KiwiSaver account (or complying superannuation fund);
from 1 April 2008, employees (aged between 18 and 65) contributing to KiwiSaver or
a complying superannuation fund will also be entitled to a matching employer contribution starting at one
percent of gross salary and rising to four percent of gross salary from 1 April 2011
(subject to enabling legislation being passed later this year);
from 1 April 2008, all employers contributing to an employee's KiwiSaver scheme
or a complying superannuation fund will be eligible for a matching employer tax credit of up to
$20 per week per employee (subject to enabling legislation being passed later this year)
The changes to KiwiSaver are primarily for the purpose of encouraging and helping individuals to save
for their retirement.
The tax credits mean that the government will be making regular contributions to KiwiSaver accounts.
In addition, the incentives announced in Budget 2005 still apply, including the $1000 kick-start contribution
and a $40 subsidy towards account fees.
Altogether, the government believes this represents a worthwhile and affordable incentive
to help people save for a more comfortable retirement.
I now turn to your specific questions about KiwiSaver.

Is there a minimum amount that must be saved?
There is no government-mandated minimum amount that must be saved, although some providers may impose
minimum entry requirements or contribution levels on their individual schemes.
However there is a minimum contribution rate for those in paid employment of 4% of gross employment income.
Any other person who is not in employment can contract in to KiwiSaver at a rate agreed with their provider.
If a saver can no longer afford to contribute 4% of employment income into KiwiSaver they may apply for
a contributions holiday for up to five years at a time.
However members will not be able to take a contributions holiday until they have been making contributions
to KiwiSaver for at least 12 months (except if financial hardship is experienced within 12 months).

Does the participant have to stay in the scheme for any particular time before exiting?
Savers will be able to withdraw all funds from their Kiwisaver account when they reach the age of eligibility
for New Zealand Superannuation (NZS) or after 5 years of membership which ever is the later.
For example, if a member joins KiwiSaver aged 63, they will not be able to withdraw their funds for five years i.e., when they are 68.

Can the money be accessed in cases of hardship?
Yes. In cases of financial hardship or serious illness members can apply to withdraw savings.
If members are experiencing, or likely to experience, significant financial hardship they can apply to withdraw
part or all of their savings (including any vested employer contributions but excluding the $1,000 kick-start and member tax credit)
Significant financial hardship includes significant financial difficulties that arise because members are:

not able to meet minimum living expenses;
not able to meet mortgage repayments on their family home, resulting in their mortgage provider
seeking to enforce the mortgage on your property;
modifying their home to meet special needs arising from them or a dependent family member having a disability;
paying for medical treatment if they or a dependent family member becomes ill, has an injury or requires palliative care;
suffering from a serious illness; or
incurring funeral costs if a dependent family member dies.
For significant financial hardship withdrawal, the scheme trustees
(or Inland Revenue if the request is made in the first three months of membership)
will want to know that reasonable alternative sources of funding have been explored.
Members may be required to complete a statutory declaration about their assets and liabilities,
and to provide other documents or information to support their application.
The amount that can be withdrawn may also be limited to a specified amount.
If a member is experiencing serious illness they can apply to withdraw part or all of their savings
(including any vested employer contributions and member tax credit but currently excluding the $1,000 kick-start)
Serious illness means an injury, illness or disability that results in their being unable to engage in work for
which they are suited due to experience, education or training, or that poses a serious and imminent -risk of death.

Is the money locked in until 65 years of age?
Yes under normal circumstances. Members will be able to withdraw all funds (including the $1000 kick -start and member tax credits) from their
KiwiSaver account when they reach the age of eligibility for New Zealand Superannuation (NZS)
or, after 5 years of membership which ever is the later.
Situations where members may be able to withdraw some of their funds before reaching 65 included in the
event of significant financial hardship, serious illness or on permanently emigrating from New Zealand.
After three years of saving, members will be able to withdraw their own funds and any employer contributions
to make a deposit on their first home.

If a participant is 63 can the money be accessed at 65?
Members become eligible to withdraw their savings (including the government: kickstart and member tax credits)
as a lump sum when they qualify for NZS (currently 65) or after five years' membership, whichever is later.
If someone joins between the ages of 60 and 65, they cannot access their savings until they have been
a KiwiSaver member for five years.
So if someone joins at the age of 63, they will be able to access their savings at 68.

Who will deposits be with?
Members of KiwiSaver can choose a savings scheme to suit them.
There will be a range of scheme providers and several investment types with different risk process.
A member can change schemes at any time, but can only belong to one scheme at a time.
A list of providers with registered KiwiSaver schemes is available at www.kiwisaver.qovt.nz.
The list is being updated regularly as providers complete the registration of their schemes.
If a member is automatically enrolled, or opts in to KiwiSaver, and does not make an active choice of provider,
they will be allocated to their employer's chosen KiwiSaver scheme, if they have one, or to a default KiwiSaver scheme.
If a member is allocated to a default scheme it will be a "conservative fund".
Six financial institutions have been appointed by the government to be default scheme providers
through a tender process managed by the Ministry of Economic Development.
The default providers are:

AMP Services (NZ) Limited
ASB Group Investments Limited
ING (NZ) Limited
Mercer Human Resource Consulting Limited
National Mutual Corporate Superannuation Services Limited (trading as AXA New Zealand)
TOWER Employee Benefits Limited.

What will be the interest rate paid on deposits?
The return on a member's funds in KiwiSaver will depend on what assets the funds are invested in.
When a member is allocated to a scheme, they will receive a letter advising which scheme it is,
and a copy of the scheme's investment statement.
If their employer has a chosen scheme, they will receive a copy of the investment statement from their employer.
Potential savers or members can also request investment statements directly from providers.
The investment statement is an important document that sets out the specific rules, fees, terms and conditions
of the scheme, and explains how member's money will be invested.

Will the deposits be government guaranteed?
KiwiSaver schemes will not be government guaranteed;
they will be provided and managed by superannuation scheme providers in the private sector.
If the government were to guarantee KiwiSaver schemes, this would reduce incentives for fund managers to perform,
and for KiwiSaver members to shop around for the fund which suits them best.
From year to year some KiwiSaver funds will lose money as prices fluctuate, but over the longer term
investing in a well-diversified portfolio of assets is likely to yield a better risk-adjusted rate of return
than investing in just one class of asset.
New Zealand has a regulatory system governing the operation of superannuation schemes and the KiwiSaver Act
brought in additional requirements for KiwiSaver schemes, including, for example,
that the fees charged not be unreasonable and that each scheme has at least one professional independent
trustee supervising the scheme.
Given the added incentives announced in the Budget for people to join KiwiSaver, the government will be
looking at whether any other additional regulatory requirements need to be put in place to ensure
there is the appropriate degree of consumer protection.
The regulation of superannuation schemes has been included in the Ministry of Economic Development's current
Review of Non-Bank Financial Products and Providers.
You can find out more about the review here at www.med.qovt.nz.
For further information on KiwiSaver you may find these websites useful: www.kiwisaver.qovt.nz www.sorted. orq.nz www.treasury.qovt.nzlkiwisaver

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