Explore the differences between New Zealand's KiwiSaver Scheme and Complying Funds, retirement savings options with unique features and employer contribution implications. Understand the contributions, eligibility, and flexibility of each scheme with practical examples.
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“Apparently this distinction has implications for what the employer pays as their contribution. But what is the difference, with examples?”
(Original question on Reddit)
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In New Zealand, the KiwiSaver Scheme and Complying Funds are both retirement savings vehicles, but they have distinct characteristics and implications for what employers contribute. Let’s explore the differences between the two with examples:
KiwiSaver Scheme:
Open to Individuals: KiwiSaver is a government-regulated retirement savings scheme available to all New Zealand residents and citizens, as well as some individuals on work visas.
Contributions: Employees and employers are both required to contribute a minimum of 3% of the employee’s gross salary or wages to the KiwiSaver account. Employees can choose to contribute more if they wish.
Employer Contributions: Employers are required to contribute at least 3% of an employee’s gross salary or wages to their KiwiSaver account. This is a mandatory contribution.
Example:
Suppose an employee earns $50,000 annually. In a KiwiSaver scheme, both the employee and the employer must contribute a minimum of 3% of the employee’s income to the KiwiSaver account, which amounts to $1,500 each for the year.
Complying Fund:
Closed to New Members: Complying funds are typically workplace-based superannuation schemes that were established before the introduction of KiwiSaver in 2007. New employees may not join these schemes, and they are generally closed to new members.
Contributions: The contribution rates for complying funds vary and are typically set by the terms of the fund. Employees and employers may negotiate and agree upon the contribution rates, but they are not subject to a minimum mandated level.
Example:
Imagine an employee who is a member of a complying fund established before KiwiSaver. The contribution rate for this fund might be different from the standard KiwiSaver 3% rate. For instance, the employee and employer could agree on a 2% contribution rate for both parties, with the flexibility to change it as per the terms of the fund.
It’s important for employers and employees to be aware of the specific rules and terms of their retirement savings scheme, whether it’s a KiwiSaver scheme or a complying fund, to understand the implications for contributions and retirement savings. Consider consulting a financial adviser if you are still unsure which fund is best for you personally.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The views expressed in this article are the views of the author. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate financial advice from a Financial Adviser to suit your individual circumstances or contact National Capital.
