Country profiles

New Zealand

Country profiles

New Zealand

Complementary pensions (Quasi Mandatory)

Updated: 01 July 2019

Expand

2019: Financial Services Legislation Amendment Act 2019; this Act creates a new regulatory regime for financial advice and addresses misuse of the financial service providers register by making amendments to the Financial Markets Conduct Act 2013 and the Financial Service Providers (Registration and Dispute Resolution) Act 2008. Once fully in effect it will repeal the Financial Advisers Act 2008.

2013: Financial Markets Conduct Act; governs the way financial products are offered, promoted, issued and sold and provides ongoing responsibilities of those who offer, issue, manage, supervise, deal and trade financial products. It also regulates the provision of certain financial services and introduces a licensing regime for fund managers and covers the financial reporting and audit requirements for FMC reporting entities. The Financial Markets Conduct Regulations 2014 provides the supporting detail to this Act.

2013: Financial Reporting Act; provides a framework for financial reporting standards and auditing and assurance standards (standard for retirement benefit plans is NZ IAS 26), and provides for auditor qualifications and other standard provisions relating to financial reporting duties under other enactments.

2011: Auditor Regulation Act; regulates and provides a licensing framework for auditors who carry out audits in respect of FMC reporting entities regulated under the Financial Markets Conduct Act.

2011: Financial Markets Supervisors Act; provides for a licensing regime requiring persons who wish to be appointed as trustees or statutory supervisors to be capable of, and accountable for, effectively performing the functions of trustees or statutory supervisors.

2011: Financial Markets Authority Act; established the Financial Markets Authority (FMA) as the financial market conduct regulator (which subsumed the office of the Government Actuary). The FMA has market oversight for superannuation and KiwiSaver schemes, and is responsible for licensing fund managers.

2008: Financial Service Providers (Registration and Dispute Resolution) Act; requires all financial service providers to be registered and to be a member of a dispute resolution scheme.

2008: Financial Advisers Act; provides for an authorisation and registration regime for financial advisers to promote the sound and efficient delivery of financial advice and encourage public confidence in the professionalism and integrity of the industry. This Act is expected to be repealed in 2020 by the Financial Services Legislation Amendment Act 2019.

2007: Income Tax Act; regulates the tax treatment of contributions, investment income and benefits. The Act also sets out the annual contribution paid by the Crown to KiwiSaver members over the age of 18 and sets out the rules for the regulation of complying funds (non-KiwiSaver funds, which have similar rules to KiwiSaver and members are entitled to certain KiwiSaver benefits)

2006: KiwiSaver Act; establishes KiwiSaver schemes to facilitate individuals' retirement savings, principally through the workplace. KiwiSaver schemes are treated as a registered superannuation scheme. The Act also sets out the statutory contribution rates for employees and employers, and the processes for channelling these contributions via the Department of Inland Revenue, acting as a central administrator.

1993: Human Rights Act; prohibits discrimination on grounds of age, gender, disability, ethnicity, marital status, but defines some exemptions for superannuation schemes in respect of age and gender if actuarially justified.

1956: Trustee Act; defines general fiduciary requirements for trustees. The Trusts Bill seeks to replace the Trustee Act 1956 and also incorporates key aspects of common law into legislation.

Expand

Plan sponsors

Single employers may, on a voluntary basis, establish a complementary occupational pension plan (i.e. employer superannuation scheme) for their employees.

Terms, including employer contribution levels, are almost invariably determined by the employer. However, in the case of KiwiSaver, the Government mandates minimum employer contribution levels through legislation.

Insurance companies and other providers of financial services may promote master trust schemes and seek employer clients for such trusts.

Provision of superannuation through collective bargaining is very rare.

Types of plans

KiwiSaver Schemes: KiwiSaver is a voluntary savings scheme aimed at encouraging New Zealanders to save for their retirement. KiwiSaver schemes are a specialised vehicle of the registered superannuation scheme.

From 1 July 2007, when KiwiSaver started, all employers have been required to automatically enrol their new employees in KiwiSaver (unless the employer already provided access to complying superannuation schemes or the employee does not qualify for automatic enrolment). Employees who are automatically enrolled upon starting a new job can choose to opt-out between the 14th and 56th day of their new employment.

In addition, any employee, provided they meet eligibility criteria, can join KiwiSaver by contracting directly with a KiwiSaver scheme provider or providing their employer with a KiwiSaver deduction notice. KiwiSaver schemes are portable, which means members can continue to contribute to the same scheme upon changing jobs. People under the age of 18 and non-employees, such as the self-employed and beneficiaries, can opt-in to KiwiSaver by contracting a KiwiSaver scheme provider directly. Those who choose to opt-in to KiwiSaver cannot opt-out at a later date. Being a member of another superannuation scheme does not prevent someone from also joining KiwiSaver. For employees though, if their employer is already making contributions to another scheme on their behalf, they may not be required to make employer contributions to KiwiSaver.

Any employee can cease having employee contributions deducted from their salary or wages by applying for a savings suspension (up to one year at a time) after 12 months of membership.

Registered superannuation schemes: Occupational schemes may be single employer, on a stand-alone basis, or may be part of a master trust arrangement catering for many employer sub-schemes. Insurance companies and other providers of financial services may establish master trust schemes and seek employer clients for such trusts, and also offer to help establish stand-alone schemes. Some industry-wide or union-based schemes also exist but date back prior to 1990 and are rare.

Most schemes are defined contribution and provide a lump sum at retirement, although some defined benefit schemes exist. New schemes are almost invariably of the defined contribution lump sum type and participate under a multi-employer master trust scheme framework.

There are some differences in tax treatment which depend on whether the scheme is primarily for the purpose of providing retirement benefits (a ‘superannuation scheme'), and if so, whether it is registered with the Financial Markets Authority. For registered superannuation schemes (which includes KiwiSaver schemes) New Zealand operates on a "TTE" or "TtE' model (as tax rates on investment income are slightly concessionary); contributions to the scheme are taxed, or paid from after-tax income, and income arising from investments is also taxed. Withdrawals from the scheme are exempt. For non-registered superannuation schemes, a TTT model may apply.

The manager of the scheme must meet the following requirements to apply for registration of a new scheme:

- Provide a copy of the compliant trust deed;
-The Manager must be licensed by the Financial Markets Authority
-there must be a licensed Supervisor
-The Manager and Supervisor must not be the same or associated persons
- scheme property must be held by the Supervisor or unrelated custodian
- A certificate by the manager and supervisor stating that the trust deed complies with the requirements laid down in the Financial Markets Conduct Act.

Membership of an employer sponsored scheme is usually offered at the discretion of the employer. A small minority of employers makes membership a condition of employment.

Additional voluntary contributions are permitted in many schemes, but are subject to the trustees' consent and must be paid via the employers payroll.

Expand
Registered superannuation schemes and KiwiSaver schemes: Schemes are implemented through a trust deed. Trustees are legally responsible for the scheme even where certain powers are delegated. The trust deed sets out the number of trustees and provisions for their appointment and retirement. The trustees administer the scheme completely separately from the sponsoring employer.

There are no legal rules as to how trustees are constituted. Trustees may be individuals or a body corporate and in the latter case, the directors are effectively the trustees. All restricted schemes must have a licensed independent trustee. The employer (or a subsidiary) is not prohibited from being a corporate trustee, and this does occur. There is no legislative requirement for appointment or election of member or employee trustees, although there are some instances in which this occurs. The general rule for single-employer schemes (known as stand-alone schemes) is that the employer will appoint trustees, commonly senior executives of the employer and an licensed independent trustee must be appointed. For master trusts, a supervisor is appointed.

The trust deed shall specify the following matters:

- Conditions of membership (eligibility);
- Conditions as to termination of membership;
- Contributions payable to the scheme;
- Benefit qualifying conditions and benefit formula;
- The circumstances under which the scheme may be wound up, and the asset distribution in the event of winding up;
- The number of trustees and the provisions for their appointment and retirement.

Trustees may, and often do, appoint an administration manager and one or more investment managers. There are no licensing requirements in either case. Appointed managers are normally paid, and such services may be provided by insurance companies, other financial institutions, or specialist entities.

Trustees may insure ancillary death and disability benefits provided by the scheme with an insurance company.

All KiwiSaver schemes and registered superannuation schemes must have as their principal purpose, the provision of retirement benefits to beneficiaries who are natural persons. KiwiSaver schemes must be defined contribution schemes, there must be a licensed manager and an licensed supervisor. The manager is deemed to be the issuer and promoter of the scheme interests. For all KiwiSaver schemes (other than restricted and/or complying superannuation schemes) the supervisor must be licensed.

The Financial Markets Conduct Act 2013 and the KiwiSaver Act 2006 apply in most instances to KiwiSaver schemes.

For registered superannuation schemes trustees are appointed in accordance with the trust deed rules (some schemes require member appointed trustees others permit the principal employer to appoint and dismiss the trustees). For KiwiSaver schemes the legislation requires the appointment of an independent supervisor.

The Financial Markets Authority is required to confirm a KiwiSaver schemes governing document complies with the requirements of the Financial Markets Conduct Act 2013

The Financial Markets Conduct Act 2013requires registered managed investment schemes, irrespective of form, to comply with a common set of key governance and reporting requirements. The licensed manager and licensed supervisor owe statutory duties of care to investors. It also requires the custodianship of scheme property to be independent from the manager. KiwiSaver and superannuation schemes are required to be a trust that is established and governed by a trust deed administered in accordance with New Zealand law.

Expand
Registered superannuation schemes: Private- and public-sector employees.

The trust deed specifies the eligibility provisions to join a registered superannuation scheme and for employer schemes. It will often be at the discretion of the employer. Often only full-time employees are eligible, thus discriminating between full-time and part-time employees. Waiting periods may be applied.

Discrimination on grounds of age, gender, disability, marital status and ethnicity is prohibited, except (in the case of the first three categories) where permitted by the Human Rights Act 1993 on actuarial grounds. That Act did not have fully retrospective effect in some respects, and hence some discriminatory features may remain for those who became members prior to 1 January 1996, or 1 February 1999. Different benefit formulae may apply to different occupational categories of employees.

The self-employed may join defined contribution superannuation schemes and/or a KiwiSaver scheme offered by insurance companies, banks, and other financial institutions. Individual employees may arrange payroll deductions to such schemes with the consent of their employer.

KiwiSaver: The KiwiSaver Act applies to people who are New Zealand citizens, or entitled to live in New Zealand indefinitely and who are living or normally living in New Zealand at the time they become subject to automatic enrolment or opt in. While only new employee's (who are not employed by an exempt employer, a secondee or a temporary employee) who are over 18 and under the age of 65 are subject to the automatic enrolment rules. As of 1 July 2019 over 65 year olds can opt-in to KiwiSaver.

A new employee will have contributions deducted from their first pay in their new job and can decide whether to continue to contribute or opt out of KiwiSaver from the end of week two until the end of week eight in this new job. If an employee opts out, any contributions that were made will be refunded (by either the employer or Inland Revenue).

In addition, any employee, provided they meet eligibility criteria, can join KiwiSaver by contracting directly with a KiwiSaver scheme provider or providing their employer with a KiwiSaver deduction notice. People under the age of 18 and non-employees, such as the self-employed and beneficiaries, can also opt-in to KiwiSaver by contracting directly with a KiwiSaver scheme provider. Those who choose to opt-in to KiwiSaver cannot opt-out at a later date.

Expand

Sources of funds

Employee contributions

Registered superannuation schemes: No legal rules.

Most schemes are contributory and the employee contribution rate is commonly 5 per cent of salary.

KiwiSaver schemes: KiwiSaver contributions deducted from pay can be 3, 4, 6, 8 or 10 per cent of gross salary or wages (Additional 6 per cent and 10 per cent contribution rates were added from 1 April 2019). Currently 3 per cent is the minimum an employee can contribute. Additional payments on a one-off or continuing basis can be made directly to the provider or to Inland Revenue - who will on-pay them to the provider.

Any employee can cease having employee contributions deducted from their salary or wages by applying for a savings suspension (of up to one year at a time) after 12 months of membership. A savings suspension can only be taken within the first year of membership if the employee is experiencing significant financial hardship; these holidays are sanctioned by Inland Revenue.

Employer contributions

Registered superannuation schemes: No legal rules.

For defined contribution schemes, employers often contribute around 5 per cent of salary. Some schemes have higher employer contribution levels, but a very few schemes require the employer to only meet the scheme administration costs.

For defined benefit schemes, the employer contribution rate is determined by the employer on advice from the actuary and the effective employer contribution rates are generally higher and amount to 10 per cent of salary or more.

Employers are able to take a contribution holiday. The trust deed of scheme will specify its conditions and the scheme actuary will need to recommend that an employer contribution holiday is in order.

KiwiSaver schemes: Employers are currently required to make a compulsory employer contribution equal to 3 per cent of an employee's gross salary or wage to an employee's KiwiSaver scheme, provided an employee is also contributing from their pay as well, and the employer is not already making contributions to another scheme (restrictions apply to the latter). An employer is not required to make compulsory contributions to employees who are under 18 or over 65, although they may choose to make voluntary contributions in respect of these employees.

Other sources of funds

Registered superannuation schemes: None.

KiwiSaver schemes:

For members aged over 18, the Government also makes an annual contribution to match members' contributions (NZD $1 Government contribution to every NZD $2 contributed by members), up to a maximum of up to NZD $521.43 per year. This is paid directly into the member's KiwiSaver account, usually in July each year.

Members who joined KiwiSaver prior to 21 May 2015 also received an initial NZD $1,000 from the Government.

Methods of financing

KiwiSaver and Registered superannuation schemes: Funded.

Asset management

KiwiSaver and Registered superannuation schemes: The trustees may manage the investment of scheme assets in-house or appoint an investment manager.

Trustees are required to exercise their powers with the care, diligence and skill that a prudent person of business would exercise in managing the affairs of others (prudent person rule).

There is no licensing of asset managers and the trustees have to take responsibility for their selection. Any appointed asset managers are also required to observe the prudent person rule.

The Financial Markets Conduct Act stipulates rules around related party investments by the manager and restricted schemes must not exceed a 5% in-house asset ratio. Effectively no more than 5 per cent of the scheme assets by market value can be invested in any sponsoring employer or any company or entity associated with a sponsoring employer.

There are no constraints on foreign investment.

Only KiwiSaver and complying schemes have a requirement for all fees to be not unreasonable. The Financial Markets Authority has issued guidance on this matter.

Expand

Acquisition and maintenance of rights

Waiting period

KiwiSaver and Registered superannuation schemes: No legal rules.

Employers define eligibility criteria for joining a scheme in the trust deed and these differ widely in practice. A waiting period of up to 1 year is not uncommon. Employers are required by law to provide immediate access to KiwiSaver schemes.

Vesting rules

Registered superannuation schemes: Employee contributions vest immediately.
For many defined contribution schemes the employer contributions vest gradually, with partial vesting starting in the first years of membership and full vesting after 7 to 10 years. However, in line with a trend for employees to have total remuneration contracts, full immediate vesting of employer contributions is becoming more prevalent. Defined benefit schemes tend to have similar vesting provisions.

KiwiSaver schemes: Employee contributions vest immediately. Any compulsory employer contributions under the KiwiSaver Act and Crown contributions (the NZ $521.43 annual contributions) vest immediately after they are paid to the provider.

Preservation, portability, transferability

Registered superannuation schemes: No legal rules.
Trust deed provisions often (but not always) allow for payment and receipt of lump-sum transfer values at the discretion of the trustees. The basis of calculation of a transfer value, and the treatment of that transfer value in the recipient scheme, will be in accordance with the relevant trust deed provisions, which may include trustee discretions.

There is implied in every trust deed of a registered scheme a provision that no member or beneficiary can be transferred to another superannuation scheme without the written consent of that member or beneficiary. The legislation also allows the Financial Markets Authority to approve, on application by the trustees or employers, the transfer of members to a new scheme without the written consent of the members and beneficiaries. The approval may only be given if the terms of the new scheme are no less favourable than the terms of the old scheme.

Preservation requirements are almost nonexistent, with employees leaving employment before retirement usually receiving a refund of their own contributions and the vested employer contributions with interest. Some defined benefit schemes however offer a deferred pension option. Indexing of deferred pensions may occur in part or in whole, depending on trust deed provisions, and generally subject to trustee discretion and possibly employer consent.

Some defined contribution schemes allow members to withdraw a part of their contributions on demand, at the discretion of the trustees or as of right. This is allowed provided the trustees can still demonstrate that the scheme is being operated principally for the purpose of providing benefits at retirement.

KiwiSaver schemes: The capital accumulated in KiwiSaver accounts is locked in until the member is eligible to receive New Zealand Superannuation (currently age 65). People may transfer between KiwiSaver schemes, between complying superannuation funds or from a complying fund to a KiwiSaver scheme at any time. However, they cannot transfer from a KiwiSaver scheme to a complying superannuation fund.

One year after permanently emigrating from New Zealand, people are able to withdrawal all accumulated savings from their KiwiSaver account excluding annual contributions from the Government. The only exception to this is when a person emigrates to Australia. Since 1 July 2013 trans-Tasman portability arrangements have allowed the transfer of retirement savings between APRA-regulated Australian superannuation funds and New Zealand KiwiSaver schemes for those members who have emigrated from one country to the other.

Retirement benefits

KiwiSaver and registered superannuation schemes: Few legal rules exist, apart from the anti-discrimination provisions of the Human Rights Act 1993.

Specification of a mandatory retirement age earlier than age 65, the age at which entitlement to social security benefits commences, is not permitted for members joining a scheme after 1 February 1999. Past practice was usually for retirement between ages 60 and 65 (depending on scheme rules), with earlier retirement subject to employer consent.

An employee required by scheme provisions to cease membership on attainment of a certain age has the statutory right to leave benefits in the scheme until ceasing employment.

It is common to provide for actuarial reductions to pensions in the case of early retirement in defined benefit schemes.

For KiwiSaver, entitlement to withdraw is not linked to employment; funds are locked in until the member is eligible to receive New Zealand Superannuation (currently age 65) but they can make withdrawals from that date even if continuing in employment. The upper age of entitlement to KiwiSaver's main benefits - compulsory employer contributions and the annual $521.43 Government contribution - are linked to qualifying New Zealand Superannuation, while the minimum age to receive the employer and Government contributions is 18 years old.

Benefit qualifying conditions

Benefit structure / formula

Registered superannuation schemes: No legal rules.

The benefit structures/formula of schemes vary widely in practice. Defined contribution lump-sum schemes are the most common, but defined benefit pension and lump-sum schemes exist and hold substantial assets.

In the past, smaller employers tended to provide defined contribution lump-sum schemes while larger employers often provided defined benefit schemes with pension benefits. However many defined benefit pension schemes have now been converted to defined contribution lump-sum schemes, and no new defined benefit schemes have been registered.

For those defined benefit schemes that do continue to exist, pension accrual tends to be of the order of 1 per cent to 1.5 per cent of final average salary for each year of service. Final average salary can be calculated over 5 years but 3 years is more common. Career average schemes are rare.

A number of defined benefit schemes provide lump sums. All defined benefit pension schemes permit at least 25 per cent commutation (i.e. receive a lump sum in place of pension) and an increasing number permit 50 per cent or even 100 per cent commutation, either at a fixed rate or determined actuarially.

Some defined benefit schemes used to be integrated with social security, generally by pensionable salary being expressed as gross salary less an offset dependent on social security benefits. In recent years, however, some of these schemes have either converted to defined contribution lump sum, or integration has been removed.

There is no requirement to purchase an annuity. Some defined contribution lump-sum schemes may offer the member that option, but the trustees are likely to buy it from a life insurance company. It is permissible to offer annuities priced on gender, provided it can be actuarially justified. The ability to purchase an annuity in New Zealand is extremely limited.

KiwiSaver schemes: The trustees must, at the member's request, pay a permitted withdrawal as a lump sum. Permitted early withdrawals are paid upon death, significant financial hardship, serious illness, purchase of first home after 3 years membership and 1 year after permanently emigrating overseas.

Benefit adjustment

Registered superannuation schemes: No legal rules.

Many defined benefit schemes' trust deeds have provision for pension increases, but these are normally subject to trustee discretion and sometimes to employer consent. A limit may be expressed, usually as a percentage of observed inflation as measured by the consumer price index, but may also incorporate a fixed maximum percentage. Some schemes are funded for planned pension increases; for others, increases depend on favourable scheme experience.

Survivors

Registered superannuation schemes: No legal rules.

Survivor benefits are determined by the trust deed, are sometimes funded by an Insurance policy and are usually provided to the spouse. However, the practice varies widely.

Defined contribution schemes usually provide a lump sum of either a multiple of salary or the accrued benefit plus a percentage of salary for each year of service projected to normal retirement age.

Defined benefit schemes usually provide a multiple of salary as a lump sum. Defined benefit schemes providing pensions can also be found.

KiwiSaver schemes: If a member dies, the trustee must, on application by the member's personal representative, pay to that person an amount which is equal to the value of the member's accumulation at the date on which the application is accepted as part of the member's estate.

Disability

Registered superannuation schemes: No legal rules.

Total and permanent disablement coverage is determined by the trust deed but the practice varies widely. Disability benefits are sometimes covered by a separate insurance policy.

Defined contribution schemes usually provide a lump sum amounting to either a multiple of salary or the accrued benefit plus a percentage of salary for each year of service projected to normal retirement age.

Defined benefit schemes usually provide a multiple of salary as a lump sum. Defined benefit schemes providing pensions can also be found.

Total and permanent disablement cover for both defined contribution and defined benefit schemes generally decreases with age.

KiwiSaver: Disabilities resulting in a person being totally and permanently unable to engage in work they are suited for or pose a serious and imminent risk of death are treated as serious illness under the KiwiSaver Act. If a member makes an early withdrawal application (i.e. pre-65) on the basis of this ground and the trustee is satisfied the ground has been met, the member may fully or partially withdraw their savings.

Expand
Registered Superannuation Schemes: The scheme assets must be held by a trust separately from the assets of the sponsoring employer.

Scheme assets may only be reverted to the sponsoring employer if:

- The trust deed allows it;
- The Financial Markets Authority consents in writing;
- Sufficient assets remain to meet the accumulated benefit obligation;
- The reversion is fair considering how the assets were acquired.

The protection of rights is mainly secured through the supervision by the Financial Markets Authority and the Supervisor who have, among others, the following powers if it is considered that the scheme is, not operating in compliance with legal requirements or the security of benefits is inadequate:

A supervisor of a debt security or a registered scheme, or the FMA, may apply for a court order if it is satisfied that -
(a) the issuer and any guarantor of the financial products are unlikely to be
able to pay all money owing in respect of the financial products when it
becomes due; or
(b) the issuer is insolvent; or
(c) in the case of a registered scheme, the scheme is insolvent; or
(d) the financial position of the scheme or issuer or the security of benefits
or the management of the scheme or issuer is otherwise inadequate; or
(e) in the case of a registered scheme, the scheme does not meet the registration
requirements, or the requirements for registration as a particular
type of scheme; or
(f) there is a significant risk that the interests of product holders will be
materially prejudiced for any other reason; or
(g) the provisions of a governing document are no longer adequate to give
proper protection to product holders.
However, the FMA may apply for the order only if it is satisfied that-
(i) the supervisor has had a reasonable opportunity to apply for the order
but has not done so; or
(ii) it is necessary as a matter of urgency for the FMA to do so and it is not
reasonably practicable to wait for the supervisor to do so; or
(iii) there is no supervisor.


Changes to the trust deed that would have a material adverse effect on members requires the consent of the Supervisor or the members. If the trust deed is amended, the trustees must obtain a certificate from a solicitor, stating that the amendment will not put the trust deed in conflict with legal requirements. The trustees of restricted schemes must also obtain the consent of the FMA that the amendment will not have a material adverse effect for members.

Whistleblowing provisions require the licensed independent trustee, administration manager, investment manager, actuary or auditor of a scheme who believes that the scheme is not operating in compliance with legal requirements or the security of benefits is inadequate to inform the Financial Markets Authority of this matter.

The trustees of the scheme must ensure that proper books of accounts are kept and that annual accounts are prepared which must be audited by an auditor.

An annual report must be prepared by the trustees and lodged on the public Disclose Register that must, among others, cover the following matters:

- A statement of membership changes;
- A statement by the trustees certifying that all contributions required by the trust deed were properly made;
- A certificate by the trustees as to whether scheme assets exceed accumulated benefit obligations;
- A statement certifying that the contributions are in accordance with actuarial recommendations (defined benefit schemes only);
- The names of, and changes to, the trustees, investment manager, administration manager, actuary, auditor and solicitor of the scheme.

The financial positions of schemes that operate on unallocated funding (ie defined benefit schemes) must be examined by an actuary at least every three years. One copy of the actuarial report must be submitted to the Financial Markets Authority. There are no other legal rules in relation to the funding of defined benefit schemes, and the Professional Standard of the New Zealand Society of Actuaries (the Society has issued Professional Standard Number PS 40 to govern examinations of defined benefit schemes) is not prescriptive in relation to valuation assumptions or methods.

It is possible that if the employer becomes insolvent, insufficient assets may be available, whether because of an existing deficit, or some other reason. No special priority on insolvency of a company is given to employee superannuation entitlements. No insolvency insurance is required for schemes, and no solvency standard is prescribed. In the event of a scheme being wound up, benefits are payable as set out in the trust deed, with the priorities there assigned. If the scheme is wound up, the trustees must ensure that audited final accounts are prepared which must be submitted to the Financial Markets Authority. The trustees must advise the Financial Markets Authority and the members in writing how the scheme assets are to be distributed.

Each member must be provided with a copy of the annual report within 5 months of the close of each financial year. Members must also, upon request, be provided with an estimate of their benefits. Trustees are required to certify to members each year whether or not assets are sufficient to pay the benefits should all members withdraw from the scheme, including the cost of arrangements made for continuation of any existing benefits in payment such as pensions.

Each registered superannuation scheme must be a member of a disputes resolution scheme and notify members annually which disputes resolution scheme members can complain to.

Protection of Assets

KiwiSaver and Registered superannuation schemes: The scheme assets must be held by a trust separately from the assets of the sponsoring employer.

Scheme assets may only be reverted to the sponsoring employer if:

- The trust deed allows it;
- The Financial Markets Authority consents in writing if satisfied that sufficient assets remain to meet the accumulated benefit obligation and the reversion is fair and equitable considering how the assets were acquired.

Financial and Technical Requirements / Reporting

KiwiSaver and Registered superannuation schemes: The trustees or, in the case of non-restricted KiwiSaver schemes, the manager of the scheme must ensure that proper books of accounts are kept and that annual accounts are prepared which must be audited by a qualified auditor (which includes a licensed auditor under the Auditor Regulation Act 2011).

An annual report must be prepared by the trustees or manager for members and beneficiaries and lodged on the publicly available Disclose Register the content of which is specified in the Financial Markets Conduct Regulations 2014.

The financial position of schemes that operate on unallocated funding (i.e. defined benefit schemes) must be examined by an actuary at least every 3 years. One copy of the actuarial report must be submitted to the Financial Markets Authority. There are no other legal rules in relation to the funding of defined benefit schemes, and the Professional Standard of the New Zealand Society of Actuaries (the Society has issued Professional Standard Number PS40 to govern examinations of defined benefit schemes) is not prescriptive in relation to valuation assumptions or methods. The Financial Markets Authority may take action if, in the Financial Markets Authority's opinion, the financial position of the scheme is inadequate.

The Financial Markets Authority can order the wind up of a scheme or order that the scheme be managed in a specified manner or order the trustees to issue specified information to all members and beneficiaries. The trustees can object to these decisions and the matter would be put before the Courts.

Whistleblowing

KiwiSaver and registered superannuation schemes: The licensed independent trustee, administration manager, investment manager, actuary or auditor of a scheme who believes that the scheme is not operating in compliance with legal requirements or that the security of benefits is inadequate must inform the Financial Markets Authority of this matter. They are protected from civil, criminal or disciplinary proceedings arising from good faith disclosures.

Standards for service providers

KiwiSaver and registered superannuation schemes: As FMC Reporting Entities, the auditor of these schemes must be a qualified auditor within the meaning of the Financial Markets Conduct Act (which includes a licensed auditor under the Auditor Regulation Act 2011).

Fees

Registered superannuation schemes: No legal rules.

KiwiSaver schemes: The KiwiSaver Act prevents any person who charges a fee for services in relation to provision of a KiwiSaver scheme from charging unreasonable fees.

Winding up / Merger and acquisition

Registered superannuation schemes: If the scheme is wound up, the trustees must ensure that audited final accounts are prepared which must be submitted to the Financial Markets Authority. Benefits are payable as defined in the trust deed, with the priorities there assigned. The trustees must advise Financial Markets Authority and the members in writing how the scheme assets are to be distributed.

No special priority is given to unpaid member and employer contributions on insolvency of an employer.

KiwiSaver schemes: The Financial Markets Authority may cancel the registration of a KiwiSaver scheme and order its winding- up. The rules relating to the winding-up a scheme are set out in the KiwiSaver Act.

Bankruptcy: Insolvency Insurance / Compensation Fund

KiwiSaver and registered superannuation schemes: There is no requirement for schemes to insure against insolvency, and no compensation fund exists.

Disclosure of information / Individual action

Registered superannuation schemes: Each member must be provided with a copy of the annual report within 5 months of the close of each financial year. Members must also, upon request, be provided with an estimate of their benefits. Trustees are required to certify to members each year whether or not assets are sufficient to pay the benefits should all members withdraw from the scheme, including the cost of arrangements made for continuation of any existing benefits in payment such as pensions.

There is no superannuation ombudsman. In some cases members may be required to take their own legal action to pursue a complaint against trustees.

KiwiSaver schemes: KiwiSaver schemes are required to provide an annual report to members and lodge a copy on the publicly available Disclose Register and must also provide a separate annual return to the Financial Markets Authority on a common date, which will contain unaudited statistical information about the scheme. All KiwiSaver schemes are required to provide members of those schemes with an annual member statement about the member's account balances.

Under the Financial Service Providers (Registration and Dispute Resolution) Act 2008, all issuers of superannuation schemes and KiwiSaver schemes must be registered as a financial services providers and be members of a dispute resolution scheme.

Other measures

KiwiSaver and registered superannuation schemes: Changes to the trust deed that would have a material adverse effect on members requires the consent of the Supervisor or the members. If the trust deed is amended, the trustees must obtain a certificate from a solicitor, stating that the amendment will not put the trust deed in conflict with legal requirements. The trustees of restricted schemes must also obtain the consent of the FMA that the amendment will not have a material adverse effect for members. .

 

Expand

Taxation of employee contributions

Registered superannuation schemes: Contributions are made from taxed income and there are no rebates or other forms of concessions.

KiwiSaver schemes: Contributions are paid out of taxed income.

Taxation of employer contributions

KiwiSaver and Registered superannuation schemes: The employer superannuation contribution tax (ESCT), which is payable on employer contributions to a registered superannuation scheme on behalf of an employee, can be calculated in one of the following ways:

• A flat ESCT rate of 33 per cent, for defined benefit schemes or for employer contributions made in respect of former employees;

• An ESCT rate based on either the annual salary or wages paid to the employee in the previous standard tax year (where the employee was employed for all of that year), or an estimate of the total amount of salary or wages that the employee will earn in the year ahead (where the employee was not employed for all of the previous tax year). The ESCT rate is a flat rate applied to the full amount of the employer contribution, and is set at a rate broadly equivalent to the employee's marginal tax rate in respect of their salary and wages. Under this option the ESCT rate for contributions from 1 April 2012 is:

- 10.5 per cent with salary and wages less than NZD 16,800;
- 17.5 per cent with salary and wages between NZD 16,800 and NZD 57,600
- 30 per cent with salary and wages between NZD 57,601 and 84,000
- 33 per cent with salary and wages NZD 84,001 and over.

• The employee's personal tax rate, by treating the contribution as part of the employee's salary or wages, with the agreement of both employer and employee. Both parties must agree to this treatment because it has the effect of treating the employer contribution as a part of the employee's income for certain welfare benefit payments.

Taxation of investment income

KiwiSaver and registered superannuation schemes: Registered superannuation schemes that meet the definition of a portfolio investment entity (PIE) can elect into the PIE taxation regime, under which they will not be taxable on gains on shares in New Zealand and listed Australian companies. Under the PIE rules, income of the fund is taxed on an on-going basis as it is earned, at a rate that is the proxy for the marginal tax rate of the investor, but capped at 28%* (being the company tax rate in New Zealand).

KiwiSaver schemes are also able to utilize the PIE taxation regime.

* The top personal income tax rate in New Zealand is currently 33%; so the PIE rules are slightly concession in that they provide a ‘TtE' tax outcome for those investors whose personal rates are either 30% or 33%.

Taxation of benefits

KiwiSaver and registered superannuation schemes: As contributions and investment income are taxed, both pension and lump sum benefits are tax-exempt.

Expand
The Financial Markets Authority is responsible, for the conduct and oversight of KiwiSaver schemes restricted superannuation schemes and its responsibilities, includes monitoring of KiwiSaver scheme fees and assessing if the fees are not unreasonable. The Ministry of Business, Innovation, and Employment is responsible for policy work with regards to the regulatory framework of KiwiSaver and other registered superannuation schemes.

Financial Markets Authority

PO Box 1179
Wellington 6140
New Zealand

Tel.: (+64) 4 472 9830

www.fma.govt.nz