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KiwiSaver Program in New Zealand

The KiwiSaver is a national savings program for workers in New Zealand. This program is designed to help workers save for retirement and the purchase of a first home. The program started on July 1, 2007. Employers are required to offer either a KiwiSaver plan to their employees or an alternative pension plan meeting minimum standards. Employers are not required to contribute to a KiwiSaver plan.

Employers automatically enroll workers age 18 to 64 into a KiwiSaver plan when they start a new job, and deduct contributions from their pay. However, workers have eight weeks in which they can voluntarily decide not to contribute to the account and have their money returned.

As an incentive to participate, every worker is given NZ$1,000 by the government when they open an account. In addition, for moderate and low-income workers, the government contributes NZ$1,000 a year up to a maximum of five years toward the purchase of a first home. Couples who both contribute to KiwiSaver accounts each qualify for the subsidy, so that a couple could receive up to NZ$10,000. The government also subsidizes the fees workers pay to financial institutions providing KiwiSaver plans.

Workers can contribute either 4 percent (the default) or 8 percent of their before-tax pay to the accounts. Employers can pay part or all of the minimum contribution for their employees. Contributions made to KiwiSaver plans on behalf of employees are tax free up to 4 percent of pay or the amount the worker contributes, whichever is less.

Employers deduct worker contributions from workers’ pay and transmit the money to the tax authority (called Inland Revenue).

Workers can choose a financial institution to be their KiwiSaver provider or be given a provider by default if they do not choose. The employer can choose the default provider but is not required to do so. If the employer does not choose a default provider, the government randomly places workers with a provider. Default providers will be chosen through a competitive process designed to lower fees.

The government undertook a financial education campaign to help workers make financial decisions concerning KiwiSaver accounts.

Once a worker has established a KiwiSaver account, he or she must continue contributing for one year. However, after one year, he or she can take a contribution holiday of up to five years, and can reapply for additional contribution holidays. Savings are locked in the KiwiSaver account until age 65. Exceptions are made, however, for financial hardship or to purchase a first home. At age 65, savings are withdrawn as a lump sum, unless the specific plan offers another option. Up to half of KiwiSaver contributions can be diverted to pay for a mortgage.

For more information, view the KiwiSaver website.

Read the Tax Policy Center review of Kiwisaver Plan.