BENEFITS

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21. What are the advantages for employers in offering Locked-in Schemes to employees?

In the current tight labour market, staff attraction and retention is of critical importance. Passing on the ESCT saving employers receive to employees, and enabling employees to access KiwiSaver equivalent member tax credit contributions from the Government, while maintaining the Government Guarantee and the minimum 4% earnings rate, is a tangible benefits employers can show when seeking to attract and/or retain staff.

22. What is a “salary sacrifice”?

This is where the employee chooses to “sacrifice” an additional percentage of their base salary or wages, which the employer can then pay as additional employer contributions into the relevant NPF scheme. Where the member's marginal tax rate is higher than the applicable ESCT rate ( ESCT is the rate of tax payable on an employer's superannuation contributions), the member benefits from the difference in the tax rates.

As at 1 July 2011 the highest marginal member tax rate is 33%, the same rate as the highest ESCT rate, and the PAYE and ESCT and thresholds are broadly consistent.  There is therefore now little, if any, financial advantage in paying additional contributions through salary sacrifice.

23. What are the benefits of the Locked-in Schemes?

• Locked-in Schemes offer members the same benefits as the Existing Schemes:
• Government Guarantee; and
• 4% minimum annual earnings rate.
  These benefits do not apply to KiwiSaver.
  
• Over and above this, Locked-in Schemes also offer:
• until 31 March 2012, an exemption from employer's superannuation contribution tax on employer contributions of 2% of the employee’s base salary while the employee also makes matching locked-in contributions (this exemption will be removed effective from 1 April 2012.
• member tax credit contributions from the Government with respect to employee contributions;
• access to the first home purchase subsidy from Housing New Zealand. Note that there are eligibility conditions for the first home purchase subsidy (see question 29).

24. Do employee contributions to a Locked-in Scheme attract the same member tax credits as KiwiSaver?

Yes, As at 1 July 2011 (following a reduction in the rate and the maximum amount of member tax credits),the Government provides members with a tax credit contribution matching their locked-in contributions at a rate of 50c per dollar up to a maximum of $10 per week ($521.43 a year). This credit is paid into the Locked-in Scheme and forms part of the member’s locked-in contributions. Tax credits may only be withdrawn early in cases of serious illness. If you permanently emigrate, tax credits must be repaid to the IRD.

25. Are members’ Locked-in accounts credited with the $1,000 kick start from the Government in the same way as KiwiSaver?

No. The Locked-in Schemes are not eligible to receive the $1,000 kickstart.

26. Are members of the Locked-in Schemes eligible to withdraw funds to help pay for the purchase of their first home?

Provided you have been contributing to the Locked-in Scheme for at least three years, if you have never owned a home (or are in the same financial position as would be expected of a person who has never owned a home), you may be able to withdraw the balance in your Locked-in Scheme account to help pay for the purchase of your home. A number of conditions apply, for example the house must be intended as your principal place of residence.

27. Are members of the Locked-in Schemes eligible for a Government-provided first home subsidy?

If you have been contributing continuously to the Locked-in Scheme for at least three years, you may be eligible for a subsidy of up to $1000 for each year of Scheme membership (up to a maximum subsidy of $5000), to buy your first home (or subject to conditions a second or subsequent home if you are in the same financial position as would be expected of a person who has never owned a home). The eligibility criteria are set by Housing New Zealand and include household income and regional house price caps. For details about required contribution levels and the other qualifying criteria, vist the Housing New Zealand website www.hnzc.co.nz. Housing New Zealand administers the home purchase subsidy facility and subsidies are not payable from the Locked-in Scheme.