New Zealand School Trustees Association

Memorandum: 2007/6

School:

Chair:

(where no email is indicated then the memo is sent via principal)

Principal:

(please advise any changes to above addresses)

From: Colin Davies, NZSTA, Manager Service Delivery ()

Date: 23 May 2007

Subject: Introduction of KiwiSaver

Purpose: As a result of a number of inquiries we have prepared this memo setting out some of the key points you need to be aware of in regard to the introduction of KiwiSaver. The IRD and Ministry will be sending additional and more detailed information shortly. Please await this material before taking any further action.

What retirement savings schemes are available to board employees?:

KiwiSaver will be available to all board employees from 1 July 2007

Currently all board employees (subject to period of employment) can belong to the State Sector Retirement Savings Scheme (SSRSS) or (if a teacher or principal and a union member) to the Teachers Retirement Savings Scheme (TRSS). The employer subsidy is met by government.

The SSRSS has been modified to align with KiwiSaver (see notes below on changes to SSRSS), enabling boards to become exempt from the requirement to automatically enrol new employees into KiwiSaver. The State Services Commission has undertaken to obtain this exemption on boards’ behalf.

The TRSS is currently considering enhancements (more shortly).

The exemption application has been lodged. Once boards have been ‘exempted’, new employees will not need to be ‘auto enrolled’ but must be made aware of all the schemes available to them

What about employees who are already in SSRSS or TRSS?: Currently members of SSRSS and TRSS receive a matching employer contribution in their account of up to 3% after tax (equivalent to 4.48% before tax). This is greater than the compulsory 4% before tax employer subsidy to be introduced in KiwiSaver and therefore no additional funding has been made available to enhance current employer subsidies to SSRSS and TRSS.

Employees do not have to transfer to a KiwiSaver scheme from their existing State sector scheme but they can apply to join a KiwiSaver scheme as well.

If they join KiwiSaver, employees who continue as contributing members of an employer-subsidised savings scheme (i.e. Government Superannuation Fund (GSF), National Provident Fund (NPF), SSRSS and TRSS) cannot also get the compulsory KiwiSaver employer contribution from 1 April 2008. However, if they contribute 4% of their gross salary to a KiwiSaver account they will be entitled to an upfront contribution of $1000, a fee subsidy of $40 and a member tax credit of up to $1040 per annum to their KiwiSaver account.

Whether an employee can shift an existing savings account balance into KiwiSaver will depend on the rules of the employee’s existing scheme. If they are a member of the SSRSS they will be able to transfer their savings account balance into KiwiSaver when they leave State sector employment.

Members of the existing schemes, including SSRSS and TRSS cannot currently have their employer contributions paid to a KiwiSaver scheme. However, the Government will be considering this question in the next few months.

What about the compulsory employer contributions?: Compulsory employer contributions to KiwiSaver start from 1 April 2008 at 1% per annum and increase by 1% each year to reach 4% per annum by 2011. Employer contributions to existing schemes are offset against the compulsory employer contribution to KiwiSaver (ie an employee cannot receive two employer subsidies).

The Government will be considering the best transition path for all State sector schemes to operate in the KiwiSaver environment. A process for consultation with sector groups is being established. Once the legislation to require the compulsory employer contribution is passed, the Government will confirm its decision about the transition path for State sector employees.

What do boards have to do from 1 July 2007?: Boards need to ensure that:

·  they read any information about KiwiSaver from Inland Revenue in conjunction with Education Service specific information from the Ministry of Education (to be issued shortly).

·  they make information about all the retirement savings options on offer (TRSS, SSRSS and KiwiSaver) available to employees.

·  they make provisions to enable new employees (and existing employees who choose to do so) to enrol in a KiwiSaver scheme from 1 July 2007 (further material and resources will be provided for this).

·  if they have a separate payroll system for non-teaching staff, that this will enable enrolment on 1 July 2007 (though auto-enrolment is not required).

Key changes to State Sector Retirement Savings Scheme (SSRSS):

·  From 1 July 2007, employees on contracts for more than 28 consecutive days but less than 4 months’ duration can join SSRSS as unsubsidised members, if saving a minimum of 4% gross base salary. (They can become subsidised members at the point they have completed four months of continuous employment.)

·  In addition to the normal rules for accessing all savings (e.g. retirement, or leaving State sector employment after age 50) members will be able to access their savings (with trustee approval and on production of suitable evidence):

o  to purchase their first home (after a minimum of 3 years savings from 1 July 2007)

o  in the event they have permanently emigrated and have resided offshore for at least 12 months

o  in the event of serious illness.

Colin Davies

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Any queries check out www.nzsta.org.nz or call 0800 STAhelp

Early Bird NZSTA Conference closes 25 May 2007