KiwiSaver is doing very nicely... so what now?
KiwiSaver has turned out to have been a hugely successful financial product but there are some nasty changes lurking over the horizon.
It's the old story - whenever anybody accumulates a large sum of money various undesirables aspire to get their hands on it. Banks, which manage most of KiwiSaver funds are keen to keep those fees flowing after you retire so, are lobbying the government to force KiwiSavers to take part or all of their savings in an annuity or pension rather than in a lump sum as is the current entitlement.
Treasury, conscious of the need to balance the budget is also likely to be looking enviously at the growing KiwiSaver treasure chest. The original architect of KiwiSaver, Sir Michael Cullen with the assistance of a Treasury model, recently set out his views as to how KiwiSaver should fit into a national saving for retirement strategy in conjunction with the need to make National Superannuation sustainable. Dr Cullen's proposals are radical and would, if adopted, substantially impact many people's retirement.
Dr Cullen argued that due to demographic trends National Super is unsustainable so either we take small steps to avert this trend now or face the prospect of drastic corrective action further down the track. Dr Cullen proposes radical change is in the area of funding retirement income. He says that "with life expectancy rising some increase in the age criteria is inevitable" which is fair enough but he rejects lowering the level of payment or income testing. His solution is to reduce the cost of National Super by:
Making KiwiSaver compulsory
Increasing mandatory contribution rates from individuals and employers (Australian employee contribution rates are currently around 9.25%)
Forcing KiwiSavers to take half their KiwiSaver savings by way of an annuity
Assessing eligibility for National Super on the basis of the annual National Super allowance minus the annual value of their KiwiSaver annuity.
In effect this means this would result in half of people's KiwiSaver savings being income tested. That was one option for reducing the cost of National Super.
The second option is a withdrawal tax on final KiwiSaver savings of 10-15 per cent.
It seems unfair to force New Zealander’s to save via KiwiSaver and then impose a greater tax on that savings option than other savings options. It may be fairer to just means test National Super and do it properly or people will just hide behind family trusts.
UK Pension Transfer - it's time to consider all your options
NZ tax residents with a UK pension scheme need to decide well before 31 March 2014 whether or not to transfer their scheme to a NZ one. After that date all, some or none of the transferred fund value will be taxed in NZ, depending on how long the person has been a NZ tax resident.
will apply to those who have been residents for more than 25 years, ‘none’
will apply to those who have been here for less than four years, and the ‘some
’ will apply to those in between.
But those in the all
categories, should pause for thought, before transferring their scheme to NZ as they will be invited to pay a voluntary tax in NZ on 15% of the transfer value unless they are one of the few that declared income on the scheme in NZ under the FIF regime, which taxed the growth in value of the scheme (either at the actual rate or the deemed 5% rate).
The word voluntary is to be used loosely; it’s the consequences of not making the voluntary payment that needs immediate attention. In this case the threat by IRD is that you will be exposed to the FIF regime retrospectively. Under that scheme you will pay tax (and potential penalties and interest) on a deemed 5% return. In fact IRD may go back at least to 2006 when UK allowed transfers to NZ schemes without cost. Of course if you apply the maths as soon as you may have to go back more than three years to apply the deemed 5% tax liability, you will be better off accepting the 15% voluntary liability.
Calls for an amnesty from any tax on transfers before 31 March 2014 have so far been rejected by the IRD.
One vital point to determine is whether by transferring to a Kiwisaver scheme that will allow you to withdraw funds to pay the tax bill, it triggers a UK scheme liability. If it is certain that no UK liability arises, then the 15% deemed taxable amount is worth the advantage of avoiding retrospective tax risk in NZ and circumventing UK tax on later withdrawals, not to mention avoiding the exchange rate fluctuation risk. Because, in reality, the alternative is quite simply playing the dangerous game of gambling against the IRD: gambling that either by leaving the scheme in UK or bringing it to NZ and not paying tax on 15% of the transfer value, the IRD will not go hunting tax and penalties on the FIF deemed, 5% return, from at least 2006.
Assuming an amnesty is not given, if there is no UK cost, bring the scheme into a Kiwisaver scheme before 31 March 2104, pay tax on 15% of the transfer value and look forward to the certainty that from then on any withdrawals are free from tax in both countries.
For more information of the proposed amendments, contact us
Employing school children, tertiary students or casual staff over the holiday period
Around this time of year you’re likely to consider employing casual staff. From 1st
April 2013 some changes apply to what you need to do if you employ school children.
Now, if you employ school children, students or casual staff over the holiday period, they should all complete a Tax code declaration (IR 330)
and give it to you so PAYE or tax on schedular payments from their pay can be deducted at the correct rate from their wages.
If you employ employees on a temporary contract for less than 28 days you don’t have to enrol them for KiwiSaver. If they’re already KiwiSaver members and they want you to make KiwiSaver deductions they must give you a KiwiSaver deduction form (KS 2)
ACC Levy for Partnerships, Businesses and Self Employed
Be sure to supply ACC with your correct Business Industry Classification Code otherwise your code could automatically default to ‘Manufacturing’ and this could result in a much higher ACC levy than anticipated in fact you may be paying as high as $1,367 compared to a levy of $50.
To determine your correct Business Industry Classification Code go to www.ACC.co.nz
/ ACC Levy Rates Guidebook or contact us