University staff have a range of retirement savings options as a result of the Government’s new Kiwi Saver scheme.
Human resources staff have been dealing with hundreds of inquiries about superannuation following a series of seminars conducted by trustees of the NZ Universities’ Superannuation Scheme (NZUSS) on the three campuses.
Most staff want to know what their options are and, although the take-up of Kiwi Saver has been relatively low, growing numbers of staff are signing up for the Universities’ Superannuation Scheme, says Human Resources deputy-director Alan Wheeler.
The NZUSS, which has about 900 Massey members, has been modified to make it compliant with Kiwi Saver and allow those who join, or who are already members, to choose to receive some of the benefits available under Kiwi Saver, such as a tax credit of up to $20 a week to match the member’s contributions and up to 4 per cent of an employer contribution being exempt from tax.
To qualify, members must agree to lock-in a minimum of 4 per cent of salary until age 65.
“The question of affordability is the most obvious factor affecting savings decisions,” says Mr Wheeler, “but even if staff are unable to currently commit to a savings plan they should at least be aware of what workplace schemes are in place and look to take advantage of them when they can.”
He says this is because the current NZ Superannuation benefit, currently payable to all NZ citizens and permanent residents at age 65, will not on its own meet the financial needs for the majority of staff intending to retire.
The NZUSS is the workplace scheme that has been specifically designed to meet the needs of most university staff. The recent changes to make it KiwiSaver compliant have effectively presented Massey staff with three workplace schemes to select from to assist them with their retirement savings. Those schemes are the NZUSS, which has both a “locked-in” and “unlocked” section, and KiwiSaver.
The NZUSS is open to all University staff but only those with permanent employment or a fixed-term employment agreement which has two years to run before its expiry date (and provided any associated project budget can meet the cost) can receive an employer subsidy.
Subsidised members pay a minimum of 4 per cent of their salary and the University subsidises that by 1.35 times up to a maximum of 6.75 per cent of base salary. A 5 per cent contribution attracts the maximum employer subsidy. The staff member’s contribution is calculated on gross base salary and the employer subsidy is taxed at 33 per cent before funds are paid into the scheme.
A recent change to NZUSS is that the employer contributions are vested with the staff member at the rate of 20 per cent per year of scheme membership, which means that after five years’ membership a staff member leaving employment before retirement would receive 100 per cent of both the accumulated balances of their own contributions plus the employer contributions.
The NZUSS also has a Complying Fund Accumulation (CFA) section, which has been established along similar lines to Kiwi Saver and is open to subsidised members of NZUSS. A minimum employee contribution of 4 per cent is required for the CFA and the University pays a fixed 4 per cent employer subsidy. Funds are locked-in until the age of eligibility for NZ Superannuation (currently 65). Membership of the CFA results in the staff member’s personal contributions attracting a tax credit from the Government of up to $1042.86 per annum (around $20 per week) and, in addition, the 4 per cent employer subsidy is exempt from the deduction of a 33 per cent withholding tax. CFA members do not receive the $1000 kick-start payment nor the scheme fees subsidy of up to $40 a year that the Government is offering to Kiwi Saver members.
According to Mr Wheeler, most NZUSS members contributing at 5 per cent who decide to join the locked-in CFA plan are doing so with a minimum 4 per cent contribution, as that is all that is normally required to maximise the tax benefits, and then their remaining 1 per cent, plus the remaining 2.75 per cent of the employer subsidy, is paid into the standard NZUSS plan where funds and benefits are not subjected to the “lock-in” rules.
Under the Kiwi Saver Scheme the University is an “exempt employer”, which means it is not required to automatically enrol new employees. It does not have a preferred Kiwi Saver provider so staff enrolling in Kiwi Saver must select and sign up directly with one of the approved providers.
The University does not currently subsidise Kiwi Saver but Government has said it will introduce legislation this year to require a compulsory employer subsidy of 1 percent from April next year, increasing annually to 4 per cent by April 2011. The compulsory employer subsidy will not be payable to staff already receiving a subsidy in any other workplace scheme, such as NZUSS.
About 300 Massey staff are contributing to the old Government Superannuation Fund (GSF), which closed to new members more than a decade ago. That fund is unchanged, which means that none of the tax benefits available to Kiwi Saver and NZUSS-CFA members apply to GSF members. However, if a GSF member joins a Kiwi Saver scheme in addition to GSF then they will receive the tax credits on personal contributions as well as the $1000 payment and the fee subsidy of up to $40 per annum.
Staff who require specific advice on their personal situation are encouraged to seek independent financial advice as the HR Section is only able to provide factual information about schemes and options. The web site www.sorted.org.nz also has useful information and calculators to guide financial decision-making.
To request copies of relevant information and application forms for either NZUSS or KiwiSaver call the HR Section on ext 5299.
Further information about the various schemes can be found at:
NZUSS: www.nzvcc.ac.nz/default.aspx?l=2&p=8
KiwiSaver: www.kiwisaver.govt.nz
GSF: www.gsfa.govt.nz