Kiwi Saver—What does it mean for you?

From 1st of July last year, which is the start of our Kiwi Saver year, the Government made a number of changes to Kiwi Saver and, these changes affected every working New Zealander. To recap, there were four main changes:

1. From 1 April 2012 – Employer contributions to Kiwi Saver will no longer be exempt from Employer Superannuation Contributions Tax(ESCT). Instead, they will be taxed at an employee’s marginal tax rate. E.g. if your employer pays 2% of your salary into your Kiwi Saver and the employee marginal rate of tax is 30%, then 1.4% will now be contributed instead. This means that you’ll see less go into your Kiwi Saver from your employer during the 2012 financial year.
2. For the year to 30 June 2012 and beyond – The Member Tax Credit rate halved from $1 to 50c for every $1 that members contribute. Therefore, the maximum level of the Member Tax Credit was halved from $1,042.86 to $521.43 per annum. This means that instead of matching your first thousand dollars or so of contribution each year, the Government will only contribute just over $500 for your first thousand.
3. From 1 April 2013 – The minimum employee contribution will rise from 2% to 3%.
4. From 1 April 2013 – Compulsory employer contributions will also rise from 2% to 3%.

What do these changes mean to you?

Briefly, the Government is now contributing less to your Kiwi Saver, by removing the ESCT exemption and halving the Member Tax Credit rate.

From April 2013, both you and your employer will have to pay more into your Kiwi Saver – a total of 6% of your salary, evenly split. The additional 1% in contributions by both employers and employees may not make much difference to those on medium or high salaries, but people on basic wages will probably feel the pinch in their pay packets.

For the majority of people, these changes will mean an increase to the total amount being paid into their Kiwi Saver accounts, with the higher minimum employee and employer contribution more than offsetting the reduction in Member Tax Credits and removal of ESCT exemption.

But for those people who previously chose to make employee contributions of 4% or 8% of salary, and whose employers are contributing at 4%, the changes will see a reduction in contributions credited, given the impact of the ESCT exemption removal and Member Tax Credit changes.

If you are an employer, the increase in minimum compulsory employer contributions will place pressure on your salary budget – although you do have some breathing space before this begins on 1 April 2013.