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- 1. What is a Locked-in Scheme?
- A Locked-in Scheme is an NPF scheme providing many of the advantages of KiwiSaver (refer Question 31 for a comparison of the features of a Locked-in Scheme and a KiwiSaver Scheme).
- 2. Which NPF Schemes have become Locked-in Schemes?
- New sections have been established within the -
that meet the requirements of a “complying superannuation fund”. These two schemes now have two distinct sections –
- Pension National Scheme and
- Lump Sum National Scheme
- the Existing section, also referred to as the Existing Scheme
- the Locked-in section, also referred to as the Locked-in Scheme
- 3. Why has NPF made these changes?
- NPF wanted to provide members with a similar range of benefits to KiwiSaver, while still maintaining the other benefits attached to the Existing Schemes. NPF believes this effectively gives members the best of both worlds.
MAIN FEATURES OF LOCKED-IN SCHEMES
- 4. What are the main features of the Locked-in Schemes?
- As at 1 July 2011 the minimum member contribution to a Locked-in (i.e. KiwiSaver equivalent) Scheme is 2% of the member’s base salary or wages (but see note below). Base salary generally means your before-tax salary excluding bonuses and allowances.
- Prior to 1 April 2009, the minimum member contribution to a Locked-in Scheme was 4% of the member's base salary. If you are currently contributing at a rate of 4% to the Locked-in Scheme, with the agreement of your employer you may elect to reduce your contributions to 2% of base salary or wages.
- As at 1 July 2011, the minimum contribution your employer is required to make to the Locked-in Scheme is 2% of your base salary (but see note below).
However, if you were employed by your current employer prior to 1 April 2008, then employer contributions to the Existing Scheme are likely to discharge your employer's compulsory contribution obligations (see question 20). This means that even if you are contributing to a Locked-in Scheme your employer is not required to make contributions to the Locked-in Scheme (with all your employer's contributions being paid to the Existing Scheme instead).
- Until 31 March 2012, locked-in employer contributions, of up to 2% of your base salary, are exempt from employer’s superannuation contribution tax (ESCT) - ie contributed tax-free - provided you are making matching locked-in contributions. From 1 April 2012, locked-in employer contributions will be subject to ESCT in the same manner as all other superannuation contributions.
- Locked-in employee contributions attract matching member tax credit contributions from the Government at a rate of 50c per dollar, up to $10 a week ($521.43 a year), credited to the member’s account in the relevant Locked-in Scheme.
- All contributions to a Locked-in Scheme (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 when the employee first became a member of the Locked-in Scheme (and/or of another complying superannuation fund or KiwiSaver scheme), whichever is later.
For example, if the employee is 63 years of age when they elect to join the Locked-in Scheme, they will not be able to withdraw the funds from the Locked-in Scheme until 68 years of age (after 5 years).
- Approval may be given to early withdrawal in certain circumstances, e.g. in the case of first home purchases (and sometimes a second or subsequent home purchase depending on the member’s financial situation), significant financial hardship, serious illness and permanent emigration.
- After members have been contributing to the Locked-in Scheme for 24 months they can apply for a locked-in 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 locked-in lump sum payments.
Note to members of Locked-in Schemes: The current Government intends to increase the minimum contributions payable by you and your employer to a Locked-in Scheme, from 1 April 2013. If this change proceeds as intended then both you and your employer will be required to contribute at least 3% of your base salary to your Locked-in Scheme (unless you joined your employer's employment before 1 April 2008, in which case it is likely - see question 20 - that your employer will not be required to contribute to your Locked-in account).