LOCKED-IN SCHEMES

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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 -

• Pension National Scheme and
• Lump Sum National Scheme

that meet the requirements of a “complying superannuation fund”. These two schemes now have two distinct sections –

• 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?

• The minimum contribution to a Locked-in (i.e. KiwiSaver equivalent) Scheme is 2% of the member’s base salary or wages. 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 joined a Locked-in Scheme before 1 April 2009 and are contributing at a rate of 4%, with the agreement of your employer you may elect to reduce your contributions to 2% of base salary.
• Prior to 1 April 2008, employer contributions to a Locked-in Scheme could count towards the minimum contribution of 4% on any basis (subject to a minimum employee contribution of the lesser of 1% of base salary and $10 per week).
• After 1 April 2008, and until 1 April 2009 a member of a Locked-in Scheme had to contribute a minium of 4%, exclusive of any employer contributions, unless (if his or her employer agrees) certain transitional contribution rates are adopted. These required you and your employer to each contribute 2% to the Locked-in Scheme.
• From 1 April 2009, employer contributions cannot count towards the minimum member contribution rate. The 2% minimum member contribution must, as from 1 April 2009, come form your salary.
• Employer contributions to KiwiSaver schemes or existing superannuation schemes (which are KiwiSaver equivalent schemes to which employees are contributing, such as the Locked-in section of the Pension National Scheme or the Lump Sum National Scheme) are compulsory from 1 April 2008. Prior to 1 April 2009,the compulsory employer contribution was 1% of a member’s base salary. From 1 April 2009 the compulsory employer contribution is 2% of a member's base salary.
• If you were employed by your current employer prior to 1 April 2008, then existing employer contributions to the NPF Existing or Locked-in Schemes are likely to discharge your employer’s compulsory contribution obligations.
• Until 1 April 2009, locked-in employer contributions, of up to 4% of the employee’s base salary, will be exempt from employer’s superannuation contribution tax (ESCT), provided the employee makes matching locked-in contributions. From 1 April 2009, locked-in employer contributions of 2% of the employee’s base salary are exempt from ESCT (again provided you are making matching locked-in member contributions).
• Locked-in employee contributions will attract matching member tax credit contributions from the Government of up to $20 a week ($1042.86 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.