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JOINING A LOCKED-IN SCHEME
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- 5. Who can join a Locked-in Scheme?
- Any person who was a member of an NPF scheme as at 31 March 1991, who is an employee and who is under New Zealand superannuation qualification age (currently age 65), can join a Locked-in Scheme. However, contributors to NPF’s DBP Contributors Scheme, Aircrew Scheme Annual Single Premium Scheme and Level Premium Scheme must cease contributing to those schemes before being eligible to contribute to the Existing Scheme or the Locked-in Scheme. Copies of the Investment Statements and Application Forms for the Locked-in Schemes are available from the scheme administrator, Datacom, or on our website, www.npf.co.nz
Existing members (both active and inactive) of NPF’s Pension National and Lump Sum National Schemes (Existing Members) only need to complete an Election Form. A letter and Election Form has been sent to these members advising them of this option. Copies of the Election Form are available from the scheme administrator.
- 6. When can members elect to join a Locked-in Scheme?
- Members can elect to join a Locked-in Scheme at any time.
- 7. How does a member join a Locked-in Scheme?
- Existing Scheme members can simply complete the Election Form, have the form signed by their employer and send it to the scheme administrator, Datacom. The Election Form has been mailed to Existing Scheme members as part of an Employee Package (for another copy, contact the scheme administrator).
Employees who are not Existing Scheme members, but who are eligible to join a Locked-in Scheme nonetheless, will need to obtain an Investment Statement and complete an Application Form. These documents are available from Datacom.
- 8. Do employers have to offer Locked-in Schemes to employees (if they are NPF members)?
- Yes. Any member of an Existing Scheme (who is under New Zealand superannuation qualification age) can elect to join a Locked -in Scheme. If a member decides they wish to join a Locked-in Scheme their employer must process the relevant contribution deductions.
- 9. What was the start date for the Locked-in Schemes?
- 1 July 2007.
- 10. When will members be able to access contributions into a Locked-in Scheme?
- All contributions (both employee and employer) will be locked in until the New Zealand superannuation qualification age (currently 65 years) or for 5 years from the date of commencement, whichever is later.
- 11. Are members able to make early withdrawals from a Locked-in Scheme?
- You can apply for an early withdrawal of all your account in the Locked-in Scheme in certain circumstances, e.g. in the case of first home purchases (or sometimes a second or subsequent home purchase), significant financial hardship, serious illness and permanent emigration. In each case, the Board may in its discretion permit the withdrawal if satisfied that, had you been member of a KiwiSaver Scheme, you would have been permitted to make the withdrawal.
In the case of permanent emigration, you can apply to have your locked-in savings transferred to a recognised overseas superannuation scheme, or, 12 months after you emigrate, you can apply to withdraw those savings from your locked-in account.
Note that there are restrictions on withdrawal of member tax credit contributions. Member tax credit contributions (ignoring earnings on those tax credits) can only be withdrawn before New Zealand superannuation qualification age in cases of serious illness. If you withdraw (or transfer) your locked-in savings following permanent emigration, tax credits are forfeited and repaid to the IRD.
If you die then your locked-in savings will be payable to your estate.
- 12. Can a member take a break from making contributions into the Locked-in Scheme?
- After members have been contributing to the Locked-in Scheme for 24 months they can apply for a savings break, called a contribution holiday, of between 3 months and 5 years. There is no limit to the number of times members can take contribution holidays. If members take contribution holidays, they can still make lump sum payments.
- 13. If an employee joins a Locked-in Scheme, can they continue to contribute to their Existing Scheme?
- Yes, employees may contribute to two NPF schemes at the same time, but note that employer contributions to an Existing Scheme are likely to discharge an employer’s contribution obligation entirely (meaning they are not also required to contribute to the Locked-in Scheme.
- 14. What happens to a member’s Locked-in account if they change employment?
- The member will need to ask their new employer to process their contributions into their Locked-in Scheme via payroll.
- 15. How much time and cost is involved for the employer in providing the Locked-in Schemes to employees?
- NPF and Datacom have worked hard to ensure the process involved for the employer is as simple and easy as possible. The employer is responsible for providing accurate information about the employer and employee contributions to Datacom including:
- clearly identifying which Schemes the contributions are being deposited into;
- paying the correct tax on contributions.
- 16. Are employee and employer contributions into a Locked-in Scheme made through the PAYE system in the same way as KiwiSaver?
- No, all contributions to the Locked-in Schemes are made to NPF. All queries regarding the Locked-in Schemes, and all other NPF schemes, should be directed to the scheme administrator, Datacom.
- 17. Under what circumstances will employer contributions attract the exemption from ESCT?
- Until 31 March 2012, locked-in employer contributions at the rate of 2% of base salary will be exempt from ESCT (that is, employer’s superannuation contribution tax), the employee must make matching locked-in contributions. From 1 April 2012, however, employer contributions to a Locked-in Scheme will be subject to ESCT in the same manner as other employer superannuation contributions.
- 18. Does the employer have to pass on this tax saving to their employees?
- Passing on the benefit of the ESCT exemption to employees is a matter for employers, but if the employer’s contributions are expressed as before-tax amounts, then the tax saving will be an employees as of right (credited to his or her account in the relevant Locked-in Scheme). The terms of your employment contract will be relevant. NPF strongly recommends employers do in any event pass this saving on to their employees (by way of additional contributions, if necessary) while it applies.
- 19. Will employers have to make compulsory matching payments into their employees’ Locked-in Schemes?
- As at 1 July 2011, your employer is required to contribute 2% of your base salary, except in certain circumstances (see question 20 below). However, see question 4 regarding a proposed increase in employer contributions from 2% to 3% of your base salary, effective 1 April 2013.
- 20. Will the payments employers already make into their employees’ existing NPF schemes count towards the compulsory payments employers are required to make into their employees’ Locked-in Schemes?
- In relation to employees employed before 1 April 2008 who had access to an NPF scheme as at 17 May 2007, where the employer is making or has agreed to make contributions to that scheme for the employee before 1 April 2008, and the contributions vest in the employee within a period of 5 years from the date membership commenced (which is the case in the Existing Schemes and the Locked-in Schemes) those employer contributions count as compulsory employer contributions.