Diversified manages the member-owned, Law Retirement KiwiSaver Scheme (LRKS).  Costs of running KiwiSaver schemes generally came under scrutiny, including heightened publicity, during the lead-up to the General Election. Fortunately some work was fair and thorough. Asset Magazine’s November Issue features a ‘KiwiSaver Special’, including a table analysing 34 KiwiSaver provider’s key parameters, including Total Fees. Costs of the LRKS in dollar terms feature amongst the very lowest. David Chaplin (‘Inside Money: Total KiwiSaver – a fee by FUM analysis’), published by NZ Herald on November 3rd: [available on-line: http://www.nzherald.co.nz/david-chaplin/news/article.cfm?a_id=616&objectid=10763597], compares 42 providers including a chart of comparing costs and performances. The LRKS costs as a percentage of our yet modest Funds-under-management are not the most expensive.

Unfortunately Sunday Star-Times piece of October 23rd, ‘The Hidden Costs of Saving’ was neither fair nor accurate. The article includes a chart placing your Law Retirement KiwiSaver Scheme as the worst of 25 providers, with huge and excessive costs. The article by Rob Stock relied on data sourced from the Retirement Commission and prepared by Melville Jessup Weaver. The data was wrong, with Melville Jessup Weaver mistakenly assigning the LRKS with a preposterous Trustee Fee of 0.75% p.a. The proper amount is “up to 0.075% p.a.” The Sunday Star-Times article propagated this 10-fold error over 25 years. Publication of this wrong data has unnecessarily alarmed some Members and also Advisors who have been supportive.

It is true that costs of operating The Law Retirement KiwiSaver Scheme are expected to be a little elevated initially – at least as a percentage of funds-under-management when compared with the bigger schemes. The LRKS is a proudly independent provider with its own trustee, its own strategy, auditors and fixed scheme costs, spread over a small, but growing membership. It is noteworthy that in the case of the LRKS, several of these costs are fixed dollar sums. Fixed dollar cost will not escalate to the same degree as charging wholly as percentage of Funds-under-management, as the LRKS scheme grows. The costs of the LRKS expressed as a percentage, should consequently trim down over time and with growth of membership and account balances.

The Administrators of The Law Retirement KiwiSaver Scheme have expressed disappointment over the story’s inaccuracies to the Sunday newspaper. We remain acutely conscious of costs, but also focussed on adding members and achieving superior investment returns for existing members over the medium and longer-term. Both the LRKS’ Balanced and Dynamic funds are currently positioned to participate in an expected broad recovery in financial markets.

Jess Lawrence
Marketing Manager

Brian Roulston
Administrator

Norman Stacey
Investment Advisor to LRKS

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• 1st July 2011 – The member tax credits are reduced from $1042.86 per annum to $521.00 per annum.

• 1st April 2012 – Employer contributions become taxable. Only the net amount is paid to KiwiSaver.

• July 2012 – The first member tax credit is paid (maximum credit for one year is $521.00).

• 1st April 2013 – The minimum employee contribution rate increases from 2% to 3%.

Member Tax Credits (MTCs)

Members who want to receive the maximum tax credit of $521 per annum will still have to contribute $1042.86 per annum.

Exceptions:

• Members under 18 do not receive Member Tax Credits, even if they are working and contributing to their KiwiSaver.

• If you leave New Zealand to live or work overseas, you will not be eligible for tax credits – even if you are contributing to your KiwiSaver while you are overseas.

• When you get to the age where you can withdraw your funds from KiwiSaver (currently 65 years old), you can elect to carry on contributing to your KiwiSaver but you will no longer receive tax credits.

Tax on Employer contributions

From 1st April 2012 employer contributions will become taxable under the ESCT (employer superannuation contribution tax) regime. The tax rate is based on the employees marginal tax rate.

Minimum Employee and Employer contributions

From 1st April 2013, both the minimum employe and employer contribution rates become 3%. The other employee contribution options of 4% and 8% remain unchanged.

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KiwiSaver is a voluntary, work-based savings initiative to help people with their long-term savings for retirement.

The Law Retirement Plan now offers New Zealanders access to the Law Retirement KiwiSaver Scheme. The Law Retirement Plan was established by the legal profession in 1975, when National superannuation savings were compulsory. We now have a KiwiSaver option for all New Zealanders.

The Law Retirement KiwiSaver Scheme uses the same investment advisors as the Law Retirement Plan, Diversified Investment Strategies Limited. Diversified, who provide independent investment advice, have an enviable track record and have achieved excellent returns for the Law Retirement Plan.

Investment Portfolios Available

The Law Retirement KiwiSaver Scheme offers a choice of two investment portfolios:

1. Balanced Portfolio: To seek good capital growth, over the medium to longer-term, through a diversified array of asset classes, including cash, fixing interest, shares, and alternative assets.
2. Dynamic Portfolio: To seek superior capital growth over the long term, while absorbing a high degree of sharemarket swings in the short and medium term.

Employee Contributions

Employees are able to elect to contribute either 2%, 4% or 8% of their before-tax salary/wage, and they are able to switch between contribution rates. Lump sum payments are also able to be made into the Law Retirement KiwiSaver Scheme by cheque or online banking.

*From 1st April 2013 the minimum employee rate becomes 3%.

Employer Contributions

Employees contributing to KiwiSaver will be entitled to an employer contribution of 2% of their gross salary or wage. If you change employment – your KiwiSaver scheme is not affected, your KiwiSaver account follows you wherever you go.

*From 1st April 2013 the minimum employer contribution rate becomes 3%

Government Contributions

The $1,000 tax-free government kick-start will  be paid into your account once the initial three-month period has passed.

Member Tax Credits:

• From 1st July 2011 the Member Tax Credits will become $521.43 per annum. Members who want the maximum tax credits will have to contribute $1,042.86 to receive the $521.43.

• To receive the Member Tax Credits you must be between ages of 18 – 65 and reside in New Zealand.

• If you join KiwiSaver part-way through a year (1 July to 30 June), you’ll receive a member tax credit based on the number of days in the year you’ve been a member.

• When you turn 18, you’ll receive a member tax credit for the number of days in the year (1 July to 30 June) that you are 18.

• The Law Retirement KiwiSaver Scheme will claim the tax credit on your behalf after 1 July each year. You don’t have to do anything. Your member tax credit will appear in your KiwiSaver account within a month of your provider making the claim.

First Home Deposit Subsidy

From 1 July 2010 KiwiSaver offers a first home deposit subsidy of $1,000 each year of membership in a scheme, up to a maximum of $5,000. Funds can also be used to buy land to build a house. To be eligible the member must have been saving through a KiwiSaver Scheme for at least three years & meet certain criteria. (Previous home owners may also qualify, provided Housing New Zealand determines they are in the same financial position as a first home buyer).

Housing New Zealand administers the deposit subsidy and will make payments directly to solicitors settling the purchase. If the sale of the house fails to settle, any deposit subsidy payments made to a solicitor will need to be returned to Housing New Zealand.

KiwiSaver members need to meet criteria in order to qualify. This includes criteria around income, house prices, and level of contribution to a KiwiSaver scheme. Housing New Zealand also need to see the sale and purchase agreement as part of its eligibility assessment.

For more information about the eligibility criteria and the application process visit: www.hnzc.co.nz/kiwisaver.

If you have any questions about the deposit subsidy, please contact Housing New Zealand on 0508 935 266, or email kiwisaver.firsthome@hnzc.co.nz

First Home Withdrawal

After three years of membership, members of a KiwiSaver scheme can withdraw their savings (but not government kick start or tax credits) from their scheme to help purchase their first home (but not an investment property).

KiwiSaver members need to contact the Law Retirement KiwiSaver Scheme directly. The Law Retirement KiwiSaver Scheme will process the application and pay any withdrawal to your solicitor settling the property purchase. Funds will have to be returned to scheme accounts should a property purchase not be completed.

Previous home owners may also qualify, provided Housing New Zealand determines they are in the same financial position as a first home buyer. For more information about previous home owners eligibility criteria and the application process visit: www.hnzc.co.nz/kiwisaver.

Access to Funds

Generally a member cannot access their savings until they are 65 or have been with the Law Retirement KiwiSaver Scheme for five years, whichever is later. Special circumstances include:

• a one-off withdrawal to help purchase a first home, after completion of three years with KiwiSaver
• significant financial hardship
• serious illness

If a member moves permanently overseas they are able to withdraw their funds 12 months after they leave.

Contribution Holidays & Miscellaneous

After a member has been with KiwiSaver for 12 months they can apply for a savings break, called a contributions holiday, of between three months and five years. When a member’s savings mature they can withdraw them in a lump sum. If a member dies before they are 65 their savings will be paid to their estate.A member cannot borrow against their savings.

Click here for a contributions holiday application form

Member Charges

There will be a monthly charge on a members account to cover administration costs, please refer to the Investment Statement for a full description of all fees.

Information Packs to be Provided by the Employer

Employers will need to give new employees a KiwiSaver information pack within seven days of their starting work, and provide to the Inland Revenue the names, Inland Revenue numbers and addresses of all new employees and those who want to join KiwiSaver.

Employer Chosen KiwiSaver Scheme

An employer can choose to have a preferred scheme provider so that employees who don’t choose their own savings scheme will be allocated this provider as their default scheme.

The advantages of an employer choosing a preferred provider include:

- Employers will have only one provider to liaise with

- Using a top quality preferred provider will reduce administration issues and employee questions

- Able to ensure a good investment track record and choice of investment management options that will be suitable for all employees and their different situations

- Shows an interest and concern by the employer that their employees will make a suitable decision regarding their financial future

- By choosing one provider this will remove stress and frictional comparison between employees.Under the default option there is the possibility that each employee may be allocated a different provider with different features and benefits

- By having one provider this will ensure that all employees will receive the same

- Choice of Investment funds offered

- Investment performance

- Scheme fees

- Reporting and timing of annual reports

Click here for a preferred provider application form

An employer does not incur any legal liabilities by appointing a preferred provider.However, if at any stage an employer starts offering advice to employees, they will need to comply with the legal obligations of giving financial advice. Diversified Investment Strategies Limited can assist with the advice part of the KiwiSaver process.

Employer Responsibilities

Employers will deduct employees KiwiSaver contributions from their before-tax salary/wage and forward them to Inland Revenue through the PAYE system, who will then forward these payments onto the Law Retirement KiwiSaver Scheme. Employers will also need to action any opt-out or Contribution Holiday requests and forward these to the Inland Revenue, as well as provide information packs and investment statements.

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