Pension System in New Zealand

Image for New Zealand pension funds

Pension System

The Prime Minister plans to raise the superannuation age from 65 to 67. Occurring in six-month increments between July 2037 and July 2040, the hike would not affect those born before June 30, 1972.
A likely prospect is doubling the residency requirement for super applicants to20 years instead of the current 10 years with at least five after age 50. Those already residing in New Zealand when the measure takes effect would begrandfathered. The necessary legislation is expected next year.
The New Zealand three-pillar pension system comprises of the New Zealand Superannuation, a non-contributory state pension in the first pillar, and occupational superannuation schemes and the KiwiSaver scheme in the second pillar. Private pension savings in the third pension pillar complement the pension landscape.

Public Pensions
New Zealand's public pension system, the New Zealand Superannuation (NZS), differs from those in many other countries. Its primary goal is to provide social protection rather than to replace earnings. 
The non-contributory flat-rate pension is paid to all residents fulfilling the residence requirements at the age of 65. The beneficiary must have lived in New Zealand for at least 10 years since turning 20 with at least five years spent in the country after the age of 50. The pension is financed from general tax revenues. *The residency requirements are set for discussion 2017/18.

All benefits received under NZS are subject to income tax. The pension is paid regardless of whether the person is still employed or not. It is neither work nor income-tested. New Zealand has not legislated for a compulsory retirement age and employers are not allowed to specify a mandatory retirement age in employment contracts.

Early retirement is limited. The NZS does not provide benefits to those who retire before the age of 65. Those who leave the labour market before being eligible for NZS benefits can apply for conditional, means-tested public income support.

Occupational Pensions
In addition to the existing private-sector superannuation schemes, the KiwiSaver scheme was implemented in July 2007 to complement the pension vehicles available for second pillar pension provision.

KiwiSaver scheme
KiwiSaver is a voluntary, work-based savings scheme intended to complement the NZS and help increase overall retirement savings. New employees are automatically enrolled, and have eight weeks in which to decide if they wish to opt-out. Existing employees may opt-in if they wish.

The employee must choose the KiwiSaver scheme provider to where the savings should be allocated as well as how much to contribute. The contribution rate is either 4% or 8% calculated on gross salary. Employer contributions are voluntary and subject to a vesting scale. In case the required contribution rate of either 4% or 8% is split between the employer and the employee, the full amount vests immediately.

Employers with an existing, approved superannuation scheme may apply for exemption from automatic enrolment into the KiwiSaver. 

To give impetus to the uptake of the KiwiSaver scheme, the government makes an upfront contribution of NZD 1000 to each individual account. In addition, it also contributes to paying the saver's ongoing account fees.

Employer contributions to the KiwiSaver scheme are tax-exempt up to a limit of either the employee's contributions or 4% of the employee's gross salary, whichever is lower. 

In order to ensure tax neutrality between KiwiSaver schemes and other registered superannuation schemes, the tax exemption was extended to all registered superannuation schemes, but is only applicable for registered defined contribution schemes. Withdrawals from the KiwiSaver scheme account are tax-free.

Private-sector occupational schemes
Occupational pensions are provided through superannuation schemes, either registered or unregistered, on a stand-alone basis or as a part of a master trust. The total number of registered superannuation schemes is steadily decreasing. This is partly due to the fact that stand-alone schemes are being transferred to multi-employer arrangements in order to save administration and compliance costs through outsourcing.

It is intended that the KiwiSaver scheme will complement existing superannuation funds rather than 
replace them.

Additional sources:
The Organisation for Economic Co-operation and Development (OECD) -