Overview
KiwiSaver is the New Zealand government’s subsidised retirement saving scheme provided by the private sector.
Joining KiwiSaver is voluntary, but if you are a new employee, your employer is required to automatically enrol you into KiwiSaver, but you have the option to opt out.
All eligible KiwiSaver members aged over 18 that contribute at least $1,043 per annum are entitled to a government contribution of $521 each year until age 65 (this is different from tax relief and provides a small incentive for savers).
Employee, PAYE contributions are made from after-tax income at the rate of 3%, 4%, 6%, 8% or 10% income. The minimum employer contribution rate is 3%, and these employer contributions are taxed as income to employees.
KiwiSaver funds are usually locked in until the investor is eligible for NZ Super (currently age 65). Early withdrawals can be made before 65 to buy a first home, if the investor suffers significant financial hardship, is seriously ill or leaves New Zealand permanently.
Generally, the standard advice for most eligible investors is to join KiwiSaver and contribute on a regular basis at a level that maximises the greater of either the government tax credit of $521 per annum or the maximum available employer contribution.
However, due to the restrictions on access, you may only wish to contribute the minimum amount to obtain the maximum available benefits.
Choice of providers
There is a wide choice of KiwiSaver providers available from high street banks, fund managers and some investment platforms. You are only allowed to have one KiwiSaver at any one time but can switch between different KiwiSaver providers whenever you choose.
The main considerations when choosing a KiwiSaver are:
- Competitive fees
- A fund range that is suitable for your needs and investment preferences
- Good customer service, administration and support. Although in many cases providers will offer access to a KiwiSaver App, making it easy and convenient to check your balance and manage your account.
There are specific considerations for US citizens which we explain in the box below.
Special considerations for US citizensNew Zealand and United States have a Double Taxation Agreement, but this has not been significantly updated since it came into force in 1983. The agreement is not clear on whether the US Passive Foreign Investment Company (PFIC) regime applies to investments held in KiwiSaver and as such there is differing opinions among US tax accountants on how to treat these accounts for tax purposes. Any investments considered as a PFIC, trigger additional US tax reporting requirements and can involve paying higher amounts of tax. As such, the prudent approach is to ensure the underlying investments are not considered PFICs, such as direct securities (shares and bonds etc.) and US listed pooled investments such as Exchange Traded Funds or ETFs. The other complication is that KiwiSaver schemes are typically set-up as Trusts in New Zealand in order to help protect the underlying assets. However, for US citizens this creates additional reporting obligations as membership of a KiwiSaver scheme can be considered as having an interest in a foreign trust. If a US citizen joins KiwiSaver simply to obtain the government tax credit ($521 per annum), then the costs can outweigh the benefits. However, if avoiding KiwiSaver means giving up on valuable employer contributions, joining can still be beneficial. If you are considering joining KiwiSaver, you should first talk to a local NZ financial adviser who is aware the rules for US citizens, to help you select a KiwiSaver where the underlying assets are compliant with the PFIC tax regime. |
Please note that the information contained in this note is general in nature and should not be considered as individual advice. If you would like to discuss your individual situation with an adviser, or have any questions, please contact a member of the Pacific Wealth team.
