KiwiSaver
ENROLMENT OF UNDER 18-YEAR-OLDS
Issue: Clarification of the requirements for guardians
Submissions
(Chapman Tripp, ING, Workplace Savings NZ)
If it remains intended that (for consistency with the requirements in the Care of Children Act 2004) all guardians must act jointly, then there should be a facility for one guardian to sign an application form while confirming (perhaps by oath or statutory declaration) that he or she is acting for both or all guardians jointly. There will be many situations where it is not practicable for the prospective member to have a form signed by all their guardians.
Receipt of an oath or declaration from a signatory should suffice to verify guardianship (or lack thereof), as it is not practicable for providers to verify guardianship reliably.
It is not apparent how a provider is to establish whether the individual has a guardian. Section 74 refers to those aged 16 years old, with no guardian, being able to enrol as if they are aged 18. If the provider is able to rely on a statement by the applicant that they have no guardian in these circumstances it would be helpful to make this clear. (ING, Workplace Savings NZ)
Comment
Officials consider that in practice a signed statutory declaration from a guardian would be sufficient evidence to verify their guardianship of a child. Similarly, if a child has no legal guardian a statutory declaration from the child to that effect is sufficient. Guidance on these evidential issues will be set out in Inland Revenue’s Tax Information Bulletin.
Section 16 of the Care of Children Act 2004 states that in exercising the duties and responsibilities of a guardian in relation to a child, a guardian of the child must act jointly with any other guardians of the child. Therefore officials consider that for children under 16 years of age, agreement and joint signatures must be obtained from all of the child’s guardians. A clarifying amendment should be made to ensure this.
In the case of children aged 16 to 17, because they will have to co-sign with their guardians in order to enrol in KiwiSaver, one guardian’s signature will be sufficient to enrol them.
Recommendation
That the submissions be accepted, subject to officials’ comments.
Issue: Membership-related discretions for minors in KiwiSaver
Submission
(Chapman Tripp)
The relevant provisions in the bill do not address who may exercise membership-related discretions for minors (for example, regarding investment choice) after minors have joined.
The bill could also usefully clarify that membership-related discretions can be exercised by guardians for minors. Care should be taken here, however, to avoid over-prescription in the area of requiring all guardians to act jointly and/or requiring statutory declarations.
Comment
Officials consider that membership-related discretions for under 18-year-olds can be made by either the guardian or member aged 16 and over without requiring them to be joint signatories. This will be explained in Inland Revenue’s Tax Information Bulletin article on these amendments.
Recommendation
That the submission be noted.
Issue: Member tax credits and compulsory employer contributions for under 18-year-olds
Submissions
(ASB, ING, Workplace Savings NZ)
KiwiSaver benefits should be consistent across the board. If a working minor contributes to KiwiSaver, the minor should also qualify for member tax credits and compulsory employer contributions. (ASB)
Individuals aged 16 or 17 who wish to contribute through the workplace to their KiwiSaver account should be encouraged to do so by making them entitled to compulsory employer contributions (exempt from employer’s superannuation contribution tax) and member tax credits. (ING, Workplace Savings NZ)
Comment
The entitlement age of 18 for eligibility for member tax credits and compulsory employer contributions is an existing design feature of KiwiSaver. Changing the entitlement age to 16 would create an inconsistency as employees are not subject to the automatic enrolment rules until they reach age 18. This inconsistency could create confusion for employers with their compliance obligations. Officials do not consider that reducing the automatic enrolment eligibility requirements to 16 years old is appropriate, as under 18-year-olds could then be automatically enrolled in KiwiSaver while not fully appreciating the consequences.
Furthermore, reducing the eligibility age for compulsory employer contributions to 16 would impose additional costs on employers. Similarly, reducing the eligibility age for member tax credits to 16 would impose additional costs on the Crown. Officials do not consider this appropriate in the current fiscal and economic environment.
Recommendation
That the submissions be declined.
Issue: Age limit applies at the time of application to KiwiSaver
Submission
(New Zealand Institute of Chartered Accountants)
Clause 74(3) and (4) should be amended by adding after “16 or 17 years old” the words “at the time of application”. This will clarify that the age limit applies at the time of application to remove any doubt.
Comment
Officials consider that the current legislation is already clear on this matter so the suggested amendment is unnecessary.
Recommendation
That the submission be declined.
Issue: Reference to parents as well as guardians
Submission
(New Zealand Institute of Chartered Accountants)
Clause 74(2), (3) and (4) should be amended by adding before “guardian” the words “parent or”. This will clarify that parents or guardians have the same authority to bind a child, or jointly apply for enrolment. The Care of Children Act 2004 in section 15 defines “guardianship” as the same as a parent, but a guardian has a different relationship with the child than a parent.
Comment
Section 15 of the Care of Children Act defines “guardian” as including parents. The proposed amendment is therefore unnecessary.
Recommendation
That the submission be declined.“LEASEHOLD ESTATE” – FIRST HOME WITHDRAWAL AND DEPOSIT SUBSIDY
Issue: Earlier application date to cover inadvertent applications
Submission
(New Zealand Institute of Chartered Accountants)
Clause 80(4) removes the ineligibility of individuals with a leasehold interest from the first home withdrawal or deposit subsidy in clause 8, schedule 1 of the KiwiSaver Act 2006. There is no good reason to apply this amendment from 1 July 2010 so it should apply retrospectively to cover those individuals who have inadvertently applied and been granted a first home withdrawal or deposit subsidy with a leasehold interest.
Comment
As a result of the KiwiSaver commencement date of 1 July 2007 and the minimum three-year contribution period required for eligibility for first home withdrawal and the deposit subsidy, the earliest that any member could apply or be granted either of these benefits is 1 July 2010. Therefore, there is no need for a retrospective application date.
Recommendation
That the submission be declined.
PROVISION OF ANNUAL REPORT VIA HYPERLINK
Issue: Amendment should extend to all superannuation schemes
Submissions
(ASB, Chapman Tripp, ING, Workplace Savings NZ)
It would seem logical to extend this facility to all schemes registered under the Superannuation Schemes Act 1989, to broaden the application of annual report distribution via hyperlink. This could be achieved by amending section 17 of the Superannuation Schemes Act 1989 in the same way as has been proposed to amend the KiwiSaver Act.
Comment
This bill is a taxation bill and does not propose amendments to the Superannuation Schemes Act 1989. The Superannuation Schemes Act 1989 is not administered by Inland Revenue, and policy for that Act is advised on by the Ministry of Economic Development.
Therefore any request to consider an amendment to the Superannuation Schemes Act 1989, allowing annual reports to be provided via hyperlink, should be addressed by that Ministry.
Recommendation
That the submissions be declined.
Issue: Agreement in writing to receive annual reports by hyperlink
Submission
(Chapman Tripp)
If there is to be any conditionality around providers’ ability to send annual reports by hyperlink, it should suffice simply for a member to have provided his or her email address. Anything more than that would rob the amendment of any immediate utility in relation to an existing KiwiSaver member (who will, at most, simply have given email addresses and possibly much more generic consents to receipt of electronic information).
Comment
Officials consider that the requirement for members to give consent could be expedited easily. For example, a member’s acceptance could be received via a check box in an email sent from the provider. This would be consistent with other consent requirements for consumer protection.
Recommendation
That the submission be declined.
TEMPORARY EMPLOYMENT – REQUIREMENT TO MAKE KIWISAVER DEDUCTIONS
Submission
(Matter raised by officials)
An amendment should be made to the KiwiSaver Act 2006 to ensure that existing KiwiSaver members who begin temporary employment are able to give their employer a KiwiSaver deduction notice requiring deductions of contributions to be made from salary or wages. This will also ensure that, provided certain other criteria are met (in section 101C), a temporary employee is entitled to receive compulsory employer contributions.
Comment
Temporary employees such as those employed for less than 28 continuous days are not enrolled automatically in KiwiSaver. However, a temporary employee can opt-in to KiwiSaver either by giving their employer a KiwiSaver deduction notice or by contracting directly with a KiwiSaver scheme provider. The KiwiSaver deduction notice requires an employer to deduct KiwiSaver contributions from an employee’s salary or wages. The requirement that an employer deduct an amount for the employee’s KiwiSaver scheme also ensures that, as long as certain other criteria are met, compulsory employer contributions are made to the employee’s KiwiSaver account.
However, if an individual is already a KiwiSaver member and begins temporary employment, the policy intent is that such an individual should have KiwiSaver deductions made from their salary or wages, and receive compulsory employer contributions. However, the current definition of “KiwiSaver deduction notice” in the KiwiSaver Act may prevent this from happening. This appears to be an anomaly in the legislation and should be rectified.
The purpose of KiwiSaver is to encourage long-term savings for all workers. Therefore, temporary employees who are already KiwiSaver members should be able to participate in KiwiSaver and receive employer contributions.
Recommendation
That the submission be accepted.
EMPLOYER EXEMPTION FROM AUTOMATIC ENROLMENT RULES
Submission
(Chapman Tripp, Workplace Savings NZ)
The exempt employer provisions in section 25 of the KiwiSaver Act 2006 should incorporate “successor in business” provisions which are analogous to those in section 35 of the Superannuation Schemes Act 1989. (Chapman Tripp)
A “successor in business” provision should also ensure that the employer’s exempt status is not lost due to the employer migrating its superannuation scheme to a new provider due to dissatisfaction with the existing provider’s performance or service. (Workplace Savings NZ)
Comment
Sections 24 to 32 of the KiwiSaver Act contain the rules allowing certain employers to be exempt from the requirement to automatically enrol their new employees in KiwiSaver. Employers can apply to the Government Actuary for approval for their employees to be exempt from the automatic enrolment rules if they provide access to an approved registered superannuation scheme which complies with specific criteria.
The Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 introduced a provision to ensure that employers could not establish schemes which are not KiwiSaver schemes for the apparent purpose of avoiding the automatic enrolment rules. It was considered that this behaviour undermined the policy intent of KiwiSaver and the rationale behind the exemption from the automatic enrolment rules. To overcome this concern, a sunset clause was introduced for the exemption from automatic enrolment. The exemption applies only if the scheme was in existence at the date of enactment of the amending legislation (6 October 2009).
There is concern that the sunset clause is not flexible enough to take into account situations such as mergers and acquisitions. In this situation, the replacement agreement would fall outside of the sunset clause and the employer concerned would lose its exempt employer status. A successor provision would preserve relief previously enjoyed by the employer by ensuring that an agreement that succeeds and replaces an existing agreement qualifies for the same relief which applied before the merger or acquisition.
Officials acknowledge that the sunset clause was not intended to be problematic in these situations and agree that a successor provision should be included in the legislation.
Recommendation
That the submissions be accepted.
ONGOING SHARING OF KIWISAVER MEMBER ADDRESSES
Submission
(ASB)
A legislative change should be made to allow the sharing of KiwiSaver members’ address updates between Inland Revenue and providers. This change would help providers with the ongoing costs of returned mail and tracing members’ address details.
Comment
This submission does not relate to an item in the bill. Officials consider it would be better to consider the matter for the next available tax bill to allow submissions to be received on the proposal.
Recommendation
That the submission be noted.
MISLED/MISINFORMED MEMBERS AND INCORRECT ENROLMENTS – WITHDRAWAL PROVISIONS
Submissions
(ASB, Chapman Tripp)
An independent body (such as the Ministry of Economic Development or the scheme’s independent trustee) should have the power to instruct providers to close an account if they are satisfied the closure is in the best interests of the member. A high threshold test and strict guidelines should be put in place to ensure that this process is used only in extreme circumstances. (ASB)
It is unclear whether the KiwiSaver Act excludes the application of remedial statutes such as the Contractual Remedies Act 1979 where KiwiSaver membership contracts are entered into in circumstances of otherwise remediable mis-selling or mistake. The KiwiSaver Act could usefully be amended to prescribe, for avoidance of doubt, that it does not limit the application of relevant contract and consumer protection legislation. (Chapman Tripp)
Comment
These submissions do not relate to an item in the bill. This is a significant issue that requires extensive research. However, officials are aware of the issue and may consider it further as resources allow.
Recommendation
That the submission be noted.
SHORT-PAID EMPLOYER CONTRIBUTIONS
Submission
(ASB)
The KiwiSaver Act 2006 should be amended to take the responsibility away from the trustee and place the responsibility on employers and/or Inland Revenue to follow up on short-paid compulsory employer contributions. This should be a contractual issue between employees and employers.
Comment
Officials note that this is not a submission relating to an item in the bill. It is a significant issue that requires extensive research and investigation of fiscal costs. However, officials are aware of this issue and may consider it further as resources allow.
Recommendation
That the submission be noted.
KIWISAVER HARDSHIP CLAIMS
Issue: Access to employer contributions under the significant financial hardship criteria
Submission
(ASB)
A change to the legislation should be made to remove the ability for members to withdraw employer contributions if they are facing significant financial hardship. Alternatively, members should be allowed to withdraw only their own personal contributions in cases of significant financial hardship.
Comment
Officials note that this is not a submission relating to an item in the bill. It is an issue that requires further research. However, officials are aware of this issue and may consider it further as resources allow.
Recommendation
That the submission be noted.
Issue: Discretion for trustees to pay third parties in cases of significant financial hardship
Submission
(ASB)
The trustees of some other non-KiwiSaver superannuation schemes have the discretion to pay a member’s balance (in full or in part) to a third party creditor if they have proven significant financial hardship and if the trustee believes it is in the best interest of the member to do so.
KiwiSaver scheme trustees should be given the same flexibility to pay amounts directly to creditors of proven arrears. This will ensure that KiwiSaver amounts withdrawn for significant financial hardship are used for the reasons claimed.
Comment
Officials note that this is not a submission relating to an item in the bill. It is an issue that requires further research. However, officials may consider this further as resources allow.
Recommendation
That the submission be noted.
WITHDRAWING CROWN CONTRIBUTIONS FOR SERIOUS ILLNESS
Submission
(ASB)
There is nothing to prevent an individual who is suffering from a serious illness from joining KiwiSaver. Once a KiwiSaver member, they are potentially eligible for a serious illness withdrawal, therefore entitling them to withdraw the government contributions.
A legislative change should be made to ensure that, if it is proven that a member was suffering from a serious illness at the time that they joined KiwiSaver, they are unable to withdraw any Crown contributions.
Comment
Officials note that this is not a submission relating to an item in the bill. This issue will require further research. However, officials may consider it further as resources allow.
Recommendation
That the submission be noted.