Financial Services Update: KiwiSaver Bill Released.Article by Tracey Cross and Alasdair McBeth Draft legislation for the new KiwiSaver regime was released at the end of last month. The KiwiSaver Bill has important implications for employers. We are currently reviewing the Bill to assess its implications for employers, and will produce a more detailed update setting out our analysis shortly. In the meantime Adv. 1. in the meantime - during the intervening time; "meanwhile I will not think about the problem"; "meantime he was attentive to his other interests"; "in the meantime the police were notified" meantime, meanwhile , we highlight a few key features. Employees All employees over 18 years of age, when starting a new job with an employer that is not an exempt employer, are automatically enrolled in a KiwiSaver scheme. The Bill provides for certain exceptions. Any person subject to the automatic enrolment provisions, unless they validly opt out, will become liable to automatic deduction of contributions and must become a member of a KiwiSaver scheme. Opt-out The window to opt out is two to six weeks following commencement of employment (this is longer than originally proposed). Employers Every employer of a person who starts a new job must give notice and certain information to the Commissioner of Inland Revenue Inland Revenue Noun (in Britain and New Zealand) a government department that collects major direct taxes, such as income tax Noun 1. if the employer is satisfied that the employee is subject to the automatic enrolment rules. A person who starts a new job with an exempt employer is exempt from the automatic enrolment rules. An employer who currently has a registered superannuation Superannuation An organizational pension program created by companies for the benefit of their employees. Notes: Funds deposited in a superannuation account will typically grow without any tax implications until retirement or withdrawal. scheme may apply to be an exempt employer. To be exempt, the employer's scheme must satisfy the following: All permanent employees aged 18 and over must be eligible to be a member and be able to transfer their interests in another scheme to that scheme. The trust deed A legal document that evidences an agreement of a borrower to transfer legal title to real property to an impartial third party, a trustee, for the benefit of a lender, as security for the borrower's debt. must allow members to transfer withdrawal benefits to another scheme. The minimum employee contribution must be at least 4% of the employee's gross salary. Employer contributions must vest completely within five years of membership. The scheme must be a registered superannuation scheme. The Commissioner of Inland Revenue must supply to each employer all information packs the employer requires. This information pack contains general information about the KiwiSaver scheme as prescribed pre·scribe v. pre·scribed, pre·scrib·ing, pre·scribes v.tr. 1. To set down as a rule or guide; enjoin. See Synonyms at dictate. 2. To order the use of (a medicine or other treatment). in the Bill. The employer must provide this information pack to each of its new employees. KiwiSaver contributions Employers must deduct de·duct v. de·duct·ed, de·duct·ing, de·ducts v.tr. 1. To take away (a quantity) from another; subtract. 2. To derive by deduction; deduce. v.intr. contributions via payroll and pay these to the Inland Revenue. PAYE PAYE abbr. 1. pay as you earn 2. pay as you enter PAYE (in Britain, Australia and New Zealand) pay as you earn; a system by which income tax is deducted by employers and paid directly to the rules will apply to the deduction of contributions. The minimum contribution is 4% of an employee's gross salary or wages. KiwiSaver scheme contributions will be held in an Inland Revenue holding account for a period of at least three months before going to the appropriate provider. Interest will be payable on contributions held. KiwiSaver scheme members can take a contributions holiday only after the first 12 months of contributions (except in the case of serious financial hardship, in which case they can cease contributions sooner). Applications for contributions holidays must be made to the Commissioner of Inland Revenue. Voluntary lump sum Lump sum A large one-time payment of money. contributions are also permitted. The ability to divert di·vert v. di·vert·ed, di·vert·ing, di·verts v.tr. 1. To turn aside from a course or direction: Traffic was diverted around the scene of the accident. 2. contributions towards mortgage repayments is no longer a feature of KiwiSaver. The Crown must pay a contribution of $1,000 to the first KiwiSaver scheme of which a person is a member. The Crown subsidy subsidy, financial assistance granted by a government or philanthropic foundation to a person or association for the purpose of promoting an enterprise considered beneficial to the public welfare. is locked-in until the date of entitlement An individual's right to receive a value or benefit provided by law. Commonly recognized entitlements are benefits, such as those provided by Social Security or Workers' Compensation. to withdrawal benefits (and cannot be used for first home purchases or serious hardship withdrawals). A fee contribution of a flat dollar amount per member per annum Per annum Yearly. will be paid by the responsible Department for each KiwiSaver scheme member. It is unlikely that this fee contribution will fully cover the fees of each KiwiSaver scheme. KiwiSaver schemes Any scheme that satisfies the following criteria is eligible to be a KiwiSaver scheme: It is established by trust deed and governed gov·ern v. gov·erned, gov·ern·ing, gov·erns v.tr. 1. To make and administer the public policy and affairs of; exercise sovereign authority in. 2. by New Zealand New Zealand (zē`lənd), island country (2005 est. pop. 4,035,000), 104,454 sq mi (270,534 sq km), in the S Pacific Ocean, over 1,000 mi (1,600 km) SE of Australia. The capital is Wellington; the largest city and leading port is Auckland. law. Its principal purpose is to provide retirement benefits directly or indirectly to natural persons. It is a defined contribution scheme. If a new scheme, it must have at least one independent trustee. At least one trustee is a New Zealand resident or, if a corporate trustee, at least one director is a New Zealand resident. A KiwiSaver scheme may, but does not need to be, a registered superannuation scheme. Many of the provisions of the Superannuation Schemes Act 1989 will apply to a KiwiSaver scheme. These provisions are specified in the Bill. A KiwiSaver scheme will, for the purposes of any other act, be treated as a registered superannuation scheme. KiwiSaver rules set out in Schedule 1 of the Bill are implied into every trust deed that establishes a KiwiSaver scheme. These rules include that: Trustees may not charge a fee that is unreasonable. The courts have jurisdiction to determine whether a fee is reasonable. The Government Actuary actuary One who calculates insurance risks and premiums. Actuaries compute the probability of the occurrence of such events as birth, marriage, illness, accidents, and death. may publish guidelines guidelines, n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks. regarding reasonable fee levels. Contributions are locked in until the later of the age of entitlement to New Zealand Superannuation and the date on which a member has been a member of a KiwiSaver scheme for five years. All withdrawals must be paid as a lump sum. Withdrawals may be made for the purposes of purchasing a first home. This option is only available following three years of membership. Withdrawals may be available in cases of serious financial hardship on application to the trustees of the scheme. Members can transfer from one KiwiSaver scheme to another. Applications for registration as KiwiSaver schemes are made to the Government Actuary in much the same way as applications to become registered superannuation schemes under the Superannuation Schemes Act 1989. The Government Actuary has 28 days after receiving an application to consider whether the scheme is eligible to be a KiwiSaver scheme. Existing schemes Trustees of existing superannuation schemes may do one of the following: Convert the entire scheme to being a KiwiSaver scheme. Establish a new KiwiSaver scheme within the existing scheme. Continue operating independently of KiwiSaver. Under either of the first two options, the process is by submitting a proposal to the Government Actuary. The proposal must be in the form prescribed in the Bill. To convert the entire scheme, trustees will need to obtain the consent of all members and contributing employers to the proposal. To establish a KiwiSaver scheme section within an existing scheme, trustees are only required to notify members and contributing employers of the proposal. A proposal is treated as providing a right for a member to elect to transfer all or part of their interest in the registered superannuation scheme to the KiwiSaver scheme. Trustees may make proposals on an alternative basis. In other words Adv. 1. in other words - otherwise stated; "in other words, we are broke" put differently , if the consent of all members is not obtained to the proposed conversion, trustees can instead opt to set up a new KiwiSaver scheme section. Choice of KiwiSaver scheme A member may choose the KiwiSaver scheme that they wish to become a member of by contracting directly with the provider. If an employee does not choose a KiwiSaver scheme, then an employer may choose the KiwiSaver scheme of which their employees will become members. If neither the employee or the employer choose a KiwiSaver scheme, then contributions will be paid to one of the default providers as selected by the IRD IRD Institut de Recherche pour le Développement (French) IRD Inland Revenue Department (New Zealand's tax revenue collection department) IRD Integrated Receiver Decoder . Default providers The Minister may appoint one or more eligible KiwiSaver providers for a specified term to provide a default KiwiSaver scheme and default investment product. A default provider must have at least one trustee that is a trustee corporation. Default providers and default schemes will be selected via a competitive tender process. Miscellaneous The Government Actuary is the main regulatory authority Noun 1. regulatory authority - a governmental agency that regulates businesses in the public interest regulatory agency administrative body, administrative unit - a unit with administrative responsibilities . The Bill provides the Government Actuary with an extensive role and gives him certain powers and authorities. The Bill provides for regulations to be passed prescribing a number of matters which will be important to KiwiSaver schemes. An interface with the securities legislation is provided for in the Bill. Importantly, the Bill specifies that employers will not be considered to be 'promoters' under the Securities Act 1978 simply by virtue of complying with their responsibilities under the KiwiSaver legislation. Timeline The KiwiSaver Bill has been referred to the Finance and Expenditure Select Committee following its first reading on 2 March 2006. The Committee has called for public submissions on the Bill, with the closing date for submissions being 5pm on Friday 28 April 2006. It is intended that legislation will be enacted in October 2006, with KiwiSaver schemes to start operating from 1 April 2007. This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or and no liability will be accepted for any losses incurred by those relying solely on this publication. Phillips Fox 201 Elizabeth Street Elizabeth Street can refer to:
Sydney NSW NSW New South Wales Noun 1. NSW - the agency that provides units to conduct unconventional and counter-guerilla warfare Naval Special Warfare 2000 AUSTRALIA Tel: 29286 8000 Fax: 29283 4144 E-mail: Valerie.Eddy@phillipsfox.com URL URL in full Uniform Resource Locator Address of a resource on the Internet. The resource can be any type of file stored on a server, such as a Web page, a text file, a graphics file, or an application program. : www.phillipsfox.com Click Here for related articles (c) Mondaq Ltd, 2006 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com |
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