Consolidation of interest payments for KiwiSaver contributions held by Inland Revenue

(Clause 156)

Summary of proposed amendment

The bill amends the KiwiSaver Act 2006 to enable the Commissioner of Inland Revenue to consolidate and pay interest due on employee and employer contributions for the period they are in the KiwiSaver holding account, on a periodic basis.

Application date

The amendment will apply from the date of enactment.

Key features

The amendment will allow the Commissioner to consolidate interest due on employee and employer contributions for the period they are in the KiwiSaver holding account, and credit it to members on a periodic basis − for example, weekly, monthly or quarterly. The maximum period over which interest may be consolidated is three months.

The amendment applies from the date of enactment. However, it is likely to take a few months following enactment for Inland Revenue to make the necessary IT changes to credit this interest on a periodic basis.

The amendment does not affect the method of calculation of interest due; this will still be computed on a daily basis.

Background

Section 72 of the KiwiSaver Act 2006 requires the Commissioner to establish the Inland Revenue KiwiSaver Holding Account into which employee and employer contributions are received before being passed on to the provider. The Commissioner pays interest on contributions that are held by Inland Revenue until they are forwarded to the member’s KiwiSaver scheme.

For the purposes of computing the interest due, employee contributions are treated as received by Inland Revenue on the 15th day of the month in which the deduction is made by the employer. Employer contributions are treated as received on the first day of the month in which the money is actually received by Inland Revenue.

Section 88 of the KiwiSaver Act 2006 provides that interest must be credited to the member’s account and then on-paid to their provider at the same time as the amount of the employee or employer contribution is on-paid. This can create lots of small regular credits, many for a few cents, especially if contributions are credited to members’ accounts in several stages. This creates a large volume of low-value transactions, using IT functional and storage capacity and lots of small entries on members’ statements.