New Zealand: Government Subsidy for KiwiSaver Accountholders Eliminated

The tax-free NZ$1,000 (US$710) kickstart has been a feature of KiwiSaver since 2007, when these voluntary retirement savings plans were introduced. According to the government: (1) the subsidy is no longer needed as an incentive because KiwiSaver has been very popular and enrollment has exceeded projections—as of April 2015, there were 25 million members; and (2) kickstart is too expensive – to date, it has cost the government NZ$2.5 billion (US$1.8 billion). Abolishing the subsidy will save the government NZ$125 million (US$89 million) a year for the next 4 years.

Accountholders can still receive up to NZ$ 521 (US$370) a year as a tax credit for annual KiwiSaver contributions of up to NZ$ 1,043 (US$ 741). (Budget 2015 projects that the government will spend NZ$ 705 million (US$ 500 million) for the tax credit.) However, according to industry experts, children and individuals who are not in the labor force could have negative account balances because

• they usually do not make regular contributions;
• the cost of annual provider fees (NZ$ 30 to NZ$ 40 (US$ 21 to US$ 28) and typically a percentage of the account balance) could significantly lower account balances;
• there is no minimum balance requirement.
   

Since 2007, the government contribution to KiwiSaver has decreased. In 2009, the NZ$ 40 (US$ 28) annual subsidy to help defray the cost of the administrative fees that the providers charge was eliminated; the employer NZ$ 20 (US$ 14) tax credit was eliminated and replaced with a tax on employer contributions above 2 percent of earnings; since 2012, all employer contributions are subject to taxation. In 2011, the member tax credit was cut in half.

KiwiSaver supplements New Zealand Superannuation – the flatrate, universal public pension funded by general revenues. New entrants to the labor force and new employees who do not have a KiwiSaver account are automati-cally enrolled in a KiwiSaver plan, but may opt out. All others must opt in (the self-employed and all individuals who are not in the labor force). Those employees who do not choose a provider are assigned to one of the default providers. Employees must choose a contribution rate of 3 percent, 4 percent, or 8 percent of pretax salary (the default is 3 percent); others decide on the rate with their provider. Employers are required to contribute a mini-mum of 3 percent of the employees’ earnings. As of June 2014, close to 40 percent of enrollees were automatically enrolled. About 40 percent of those who had been enrolled automatically opted out; 11 percent of all enrollees opted in (chose to participate).

Sources

“New Zealand,” International Update, U.S. Social Security Administration, January 2009, June 2011, and March 2013; “KiwiSaver Statistics,” New Zealand government, 2014; “$1,000 Kick-Start Payment,” KiwiSaver Benefits, New Zealand government, May 2015; “$1,000 KiwiSaver KickStart Canned,” stuff.co.nz, May 21, 2015; “Budget 2015: KiwiSavers Lose $1,000 ‘Kick-Start’,” New Zealand Herald, May 21, 2015; “KiwiSaver Loses its Buffer,” New Zealand Herald, May 29, 2015; “New Members to New Zealand’s Kiwisaver Scheme Will No Longer Get a $1,000 Kick-Start Payment,” Mercer, June 2, 2015.