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Inland Revenue

Tax Policy

PUBLISHED 24 August 2006

KiwiSaver, tax changes announced

The government today announced changes to the proposed KiwiSaver work-based savings scheme and to associated tax rules, to increase the scheme's appeal to employers and workers. Employer contributions will be exempt from SSCWT up to 4% of an employee's gross salary or wages, and part of a saver's contribution can go towards paying off a home mortgage. The start date of KiwiSaver will be delayed from 1 April 2007 to 1 July 2007. For more information see the media release and

Hon Dr Michael Cullen
Minister of Finance


KiwiSaver enhanced to benefit workers & employers

Changes to KiwiSaver are designed to make the scheme even more attractive for workers and employers, Finance Minister Michael Cullen said today.

"KiwiSaver aims to improve the long term savings habits of New Zealanders and builds on our efforts to better prepare the country for the challenges of an ageing population.

"The changes to the bill I am announcing today and the other measures recommended by the Finance and Expenditure Select Committee will make it easier for hundreds of thousands of New Zealanders to embrace KiwiSaver as a first step to securing their financial futures."

The changes are:

  • employer contributions to KiwiSaver schemes will be exempt from tax (SSCWT – specified superannuation contribution withholding tax), subject to a cap of the lesser of the employee's contribution or 4 per cent of their gross salary or wages.
  • a delay in the starting date from 1 April 2007 to 1 July 2007.
  • mortgage diversion: part of a person's KiwiSaver contribution can go towards paying off the mortgage on their home. The rest of the contribution goes into their KiwiSaver account (based on a United Future proposal).

Changes to KiwiSaver recommended by the Finance and Expenditure Committee include:

  • allowing the 4 per cent minimum contribution to be made up of both an employee's and their employer's contribution.
  • lengthening the time allowed for opting out from 2-6 weeks to 2-8 weeks, with deductions starting immediately
  • improving the criteria for current employer superannuation schemes to be exempted from KiwiSaver's automatic enrolment provisions.

KiwiSaver is a voluntary scheme where employees elect to contribute 4 or 8 per cent of their gross salary. They will be automatically enrolled and will have eight weeks to opt out. To kick start the scheme the government is providing a $1000 contribution and paying some scheme fees in order to improve the returns for savers.

"We are making it easy for people to save for their retirement by building up financial assets through KiwiSaver and by helping them buy a home. The government is providing up to $5000 for each KiwiSaver wanting to buy their first home.

"We are also designing a scheme that can be easily supported by employers," said Dr Cullen. "The changes and new measures will ease the transition to KiwiSaver and ensure costs and compliance are kept to a minimum.

"I am also hopeful employers will now see KiwiSaver as a valuable way of contributing to the long term financial well being of their workers. By making employer contributions tax free, we are making it even more attractive for workers to save as their balances will grow much quicker with an employer subsidy.

"We are giving employers more choices when it comes to remunerating their workers. By allowing an employer contribution to count towards the minimum contribution we are also making it easier for workers, who may struggle to contribute 4 per cent, to join KiwiSaver.

"I hope employers will now see the benefits of KiwiSaver. Helping their workers to save will improve job satisfaction, loyalty and retention so it's a win-win for workers and employers," said Dr Cullen.

"I commend Fletcher Building for being the first employer to offer a subsidised KiwiSaver workplace-based scheme for some of its workers and I hope many more follow its example. (Fletcher Building is providing a conditional 2 per cent contribution as part of KiwiSaver).

Dr Cullen said delaying the start of KiwiSaver would give providers more time to get their KiwiSaver products ready, responding to concerns voiced at select committee hearings.

"It is also being recommended that tax changes to portfolio investments also be delayed to 1 October 2007. These important changes allow investors' earnings to be taxed at their individual rates and are designed to ensure KiwiSavers and other investors are not disadvantaged compared to direct investors. The delay will give providers more to time to prepare.

"I am grateful for the work of the select committee in ensuring KiwiSaver will be a hugely beneficial savings vehicle. I also thank United Future's Gordon Copeland for his valuable contribution over the mortgage diversion addition to the scheme.

"The changes recommended by the select committee and the other measures we are taking will further enhance a scheme that has already been praised by leading pension experts overseas and the Economist magazine. Britain's independent Pensions Commission has also hailed automatic enrolment as a feature that country should adopt.

Dr Cullen also unveiled the KiwiSaver logo. "The elongated Kiwi beak is a fitting symbol as KiwiSaver is all about looking more confidently to the future.

"KiwiSaver will give New Zealanders more choices for securing their financial futures. It is essential New Zealanders develop better long-term savings habits so they can look forward with more confidence to a retirement that meets their aspirations."

Contact: Mike Jaspers, press secretary, 04 471 9412 or 021 270 9013
[email protected]