Guidance for KiwiSaver changes to take effect 1 April 2012
Further to our guidance on 20 May 2011, Budget 2011 introduced a number of changes to KiwiSaver which will impact State sector agencies and/or their employees. The first of these changes, summarised in the table below, come into effect on 1 April 2012.
The changes are:
|1 April 2012||Employer Superannuation Contribution Tax (ESCT): All employer contributions to employees’ KiwiSaver accounts will be subject to ESCT. You will need to calculate ESCT at a rate equivalent to the employee’s marginal tax rate, as the option to apply ESCT at a standard rate will cease from 1 April 2012. The ESCT amount is deducted from the amount to be paid to the employees’ KiwiSaver accounts, rather than being an extra cost to employers.|
|1 July 2012||Central reimbursement of government agencies’ KiwiSaver employer contribution costs ceases.|
|1 April 2013||Employee contributions: From 1 April 2013, the minimum employee contribution rate increases from 2% to 3% for all members. This change will require employers to raise the level of payroll deduction for employees who are currently contributing at the 2% rate.|
|1 April 2013||Compulsory employer contributions: From 1 April 2013 the minimum employer contributions to KiwiSaver accounts also increases to 3%. This will require employers to increase their contributions (except where already contributing at or above 3%).|
The State Services Commission (SSC) has recently received a number of queries from agencies about the impact of these changes.
KiwiSaver is a broad-based retirement savings vehicle that operates across public and private sector employment settings. Any agency planning to make changes to the levels of KiwiSaver employer contributions, other than as required by legislation, as part of their remuneration and/or bargaining strategies should discuss their proposals with the SSC.
For those agencies already receiving quarterly reimbursements for KiwiSaver, specific guidance on how the last payment will be managed will be released by the Central Agencies Shared Services Finance department closer to the time.
What do State sector employers need to do to implement the legislative changes?
The change that will have the most direct effect on your current processes will be the changes to ESCT. From 1 April 2012, you will need to calculate the tax for each employee based on their marginal tax rate. Inland Revenue’s website provides a clear explanation of the threshold amounts and examples of how to apply and calculate the tax for employees. This can be found at http://www.ird.govt.nz/changes/employers/.
Agencies should be aware the minimum rate of employer contribution is set to increase to 3% from 1 April 2013 and factor this into their planning and budgeting.
What should the employer tell their employees about the KiwiSaver changes?
These changes have been agreed by Government and implemented through Budget 2011 legislation. As such, all State sector agencies need to implement the changes beginning 1 April 2012. If there are specific questions about the changes the Inland Revenue website has a clear description of the changes from the employee’s perspective http://www.ird.govt.nz/changes/kiwisaver/budget-kiwisaver.html. If staff have specific questions related to their own scheme they should contact their scheme providers.
Do State sector employers need to consult with SSC when implementing the KiwiSaver changes?
If you are simply implementing the KiwiSaver changes as per the legislation then you do not need to consult with SSC. If you are considering offering something different as part of your remuneration package then you should consult your advisor in SSC’s Workforce Strategy Team.
What can employers do if they, and/or their employees, want to continue with a net (after tax) employer contribution to employees’ KiwiSaver accounts that equals the employees’ contributions?
Employers are under a legal obligation to deduct ESCT for employer contributions to KiwiSaver.
Maintaining the same level of net contribution would, from 1 April 2012, therefore require an increase in the gross employer contribution, and consequently an increase in the cost of employment. Any such course of action would need to be considered as part of an agency’s overall remuneration strategy and in light of the Government’s Expectations for Pay and Employment Conditions in the State sector.
If your agency is considering changes to the level of KiwiSaver employer contributions (other than those required by the Budget 2011 changes) then you should discuss this with the relevant advisor in the SSC’s Workforce Strategy Team.
What if the matching KiwiSaver employer contribution is expressed as ‘net’ of tax in an employment agreement(s)?
Employers are obliged to adhere to legally binding contractual agreements they have entered into.
You should advise the SSC’s Workforce Strategy Team if you consider your agency to be in such a situation.
Can State sector employers request a baseline increase to fund KiwiSaver contributions?
No. The Government has been clear that the State sector employers need to manage within their baselines and absorb the cost through efficiency gains.
State sector employers match net employee contributions for members of the State Sector Retirement Savings Scheme (SSRSS). Why is KiwiSaver being treated differently?
SSRSS and KiwiSaver are different retirement savings schemes with their own agreed rules. SSC’s advice reflects these differences. The Budget 2011 change removed the previous exemption from ESCT for the compulsory employer contributions to KiwiSaver; it does not impact on SSRSS contributions.
The SSRSS scheme (which closed to new members on 1 October 2008) specified the employer contribution as a net amount, with the employer liable for ESCT (or its predecessor) in addition to this. Note, the cost of this liability to the employer may reduce in respect of some employees as a result of the new requirement to apply ESCT at each employee’s marginal tax rate.
What about organisations that include KiwiSaver contributions as part of a total fixed remuneration (or equivalent) policy?
In certain circumstances and subject to agreement, KiwiSaver employer contributions may be considered as part of an employee’s total fixed remuneration (TFR) package.
The removal of the KiwiSaver ESCT exemption will impact on the amount being paid into the employee’s KiwiSaver account on behalf of the employer; it should not impact on the employee’s take home pay or the employee’s total remuneration.
If any agency is considering changes to its remuneration system as a result of the Budget 2011 changes then you should discuss this with the relevant advisor in the SSC’s Workforce Strategy Team.
Agencies that treat KiwiSaver contributions as part of TFR under their remuneration policy should be planning how to manage the April 2013 increase in the level of compulsory employer contribution.