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2012 the year to come

In this issue we highlight the key KiwiSaver issues that will affect 2012.

• ESCT
• Contributions holidays
• 3% employer subsidy
• First retirement benefit payments
• MTCs
• Auto-enrolment

ESCT – employer superannuation contribution tax

On 1 April 2012, all employer contributions to KiwiSaver become subject to ESCT. Until 31 March 2012, employer contributions to KiwiSaver equal to 2% of an employee’s pay are exempt. This will make it important for all employers to understand ESCT and the differences in its calculation relative to PAYE and FBT.

For most employers, it will significantly increase the workload of the payroll staff in the early part of April, i.e. between 1 April 2012 and the first pay day of the new financial year. During this time, each employee’s ESCT rate needs to be calculated.

>> Learn more about 'Calculating an employee’s ESCT rate'.

Contributions holidays from KiwiSaver

2012 may see more employees, particularly the higher paid, go on a contributions holiday to KiwiSaver. In part, this will be because there is no longer a tax break for the employer subsidy (from 1 April 2012). Without the tax break, some employees, particularly those on a “total remuneration” basis or where there is an alternative superannuation scheme, will prefer to stop their regular 2% contribution to KiwiSaver and just make a voluntary contribution of $1,043 in June each year direct to KiwiSaver. This lets them capture the government’s $521 MTC payment. This will be even more likely when the contribution rates increase in 2013. Employees go on a contributions holiday by completing an IRD KS6 form and sending it to the IRD.

3% employer subsidy 1 April 2013

In 2013, the minimum employer subsidy is expected to increase to 3%. Employers should start to factor in this increased cost to their budgeted employment costs, as they plan their 2012/13 pay reviews. The higher subsidy and the heightened publicity that will occur leading up to 2013, may also encourage more employees to take up KiwiSaver.

First retirement benefit payments

1 July 2012 is the 5 year anniversary of KiwiSaver. From this date, some employees will begin to be eligible to receive their retirement benefits. Retirement benefits may be paid once the person has been in KiwiSaver for 5 years and has reached the age of eligibility for NZ Super (currently age 65). This is the employee’s KiwiSaver Retirement Age. Benefits are paid as a lump sum but can be paid as an income under SuperLife. Benefits are tax-free.

Employees do not have to take their benefit when they become eligible and some may choose not to, particularly if the sharemarkets are down. Also, employees do not have to retire from employment to receive their benefits.

From an employer’s perspective, when an employee reaches their KiwiSaver retirement age, the employer is no longer required to pay the employer 2% contribution. The employer can, but is not required to continue subsidies. Employers should have a very clever policy in this regard. Contributions only stop when the employee becomes eligible for a benefit so for employees who joined KiwiSaver after age 60, this will be once they have been in for 5 years.

MTCs – member tax credits 

Since 1 July 2011, the MTC that KiwiSaver members have been accruing has been at $1 for each $2 they save, and the maximum MTC is $521.43 a year ($10 a week for a $20 a week employee contribution). The first MTC at this lower rate will be paid in July 2012. 

>> Read the article: 'How to get your full MTC'.

Auto-enrolment 2014/2015?

As part of the National Party policy leading into the election, it said it intended to auto-enrol all employees not in KiwiSaver, into KiwiSaver. It will do this once its books return to a fiscal surplus (i.e. tax revenue is greater than government expenditure). This is expected to be in 2014/2015.