We wish to submit the attached in respect Retirement Savings Portability Consultation document released on 21 October 2009

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1 PO Bx , Wellingtn Level 2, Curtenay Place Wellingtn, New Zealand Tel: Fax: inf@xtra.c.nz Website: 2 Nvember 2009 Chris Gillin Inland Revenue Plicy Advice Divisin P O Bx 2198 Wellingtn Dear Chris, WORKPLACE SAVINGS NZ Submissin n the Retirement Savings Prtability Cnsultatin Dcument We wish t submit the attached in respect Retirement Savings Prtability Cnsultatin dcument released n 21 Octber 2009 Wrkplace Savings NZ is a natinal, nt fr prfit, aplitical membership rganisatin. Our current membership cmprises arund 100 majr wrkplace superannuatin and KiwiSaver schemes and anther 50 rganisatins and individuals representing the varius prduct and service prviders fr wrkplace savings arrangements. We have recently reviewed the principal gals and bjectives f ur rganisatin and changed name frm ASFONZ t better reflect ur bjectives. Frm the perspective f assets under management, the membership f Wrkplace Savings NZ cvers arund 90% f retirement savings held thrugh wrkplace retirement saving arrangements (i.e. Crprate and Master Trust superannuatin schemes and KiwiSaver). Wrkplace Savings NZ s bjective is t be the Vice f Wrkplace Savings; advancing the sustainable, effective, and efficient delivery f wrkplace savings utcmes fr all invlved including the cre wrkplace superannuatin scheme members wh remain at the heart f the rganisatin. It des this thrugh: Advcating advancing legislative and public plicy initiatives beneficial t wrkplace savings and participatin in the wrkplace savings industry, making submissins, engaging with plicy makers and fficials and issuing media cmmentary t advance thse causes. Educatin prmting trustee, emplyer and member financial and regulatry educatin thrugh dedicated training prgrammes, newsletters and special interest seminars. Netwrking prviding trustees, emplyers and service prviders invlved in wrkplace superannuatin with a regular frum fr sharing ideas and infrmatin n industry matters. Prmtin publicising the benefits f wrkplace savings, and helping t imprve public cnfidence in wrkplace savings. Cntact:

2 Bruce Kerr Executive Directr, Wrkplace Savings N.Z. PO Bx , Wellingtn, NZ Ph. (04) Mb. (027) Web Site I wuld be pleased t discuss ur cmments r answer any queries in relatin t the submissin. Thank yu fr the pprtunity t make this submissin. Yurs sincerely Bruce Kerr Executive Directr \\Asfnz062006\my dcuments\submissins\2009\wrkplace Savings Submissin n Trans Tasman Prtability(2).dc

3 Wrkplace Savings NZ Te māngai penapena ā mahi Submissin t the Inland Revenue, Plicy Advice Divisin n the Retirement Savings Prtability Cnsultatin dcument released n 21 Octber Nvember 2009 \\Asfnz062006\my dcuments\submissins\2009\wrkplace Savings Submissin n Trans Tasman Prtability(2).dc

4 Summary f ur submissin Wrkplace Savings NZ supprts the intended bjectives f Trans Tasman prtability. Hwever, we cnsider that the implicatins fr savers and prviders alike shuld be carefully examined, and where apprpriate, legislative alignment that facilitates seamless prtability f accumulated retirement savings between the tw jurisdictins shuld be adpted. Retirement Savers: Wrkplace Savings NZ believes that in rder t incentivise expatriate New Zealanders t repatriate their Australian accumulated retirement savings back t New Zealand, Gvernment shuld strngly cnsider alignment f the tax rate applied t the investment earnings n the lcked in repatriated retirement savings amunt, with the rate applied in Australia. That is 15% versus the prpsed 33% (r any lesser rate applicable under the PIE regime). KiwiSaver Prviders: The intrductin f Trans Tasman Prtability will undubtedly have cst cnsequences fr KiwiSaver Prviders. These will include: Increased peratinal csts arising frm the need t ring fence and maintain recrds fr amunts transferred and subsequent applicable investment returns; Additinal csts that will arise frm the need t prduce new cmpliant prduct disclsure dcumentatin (e.g. Prspectus s and Investment Statements). Recvery f these csts may be difficult under the unreasnable fees regime, and as such, may act as a disincentive fr prvider supprt acrss the entire KiwiSaver universe. Cmment Wrkplace Savings NZ welcmes the pprtunity t cmment n the Retirement Savings Prtability Cnsultatin dcument and the draft Spareparts Bill KiwiSaver Prtability prir t the draft being intrduced int Parliament. We believe that seeking submissins frm interested parties n the wrding f such a technical piece f legislatin, in additin t the usual Select Cmmittee prcess, will result in a mre wrkable Act. Wrkplace Savings NZ wuld be pleased t discuss the issues raised at any time and t wrk with the Department with the bjective f intrducing wrkable legislatin that best meets the needs f all parties cncerned. Wrkplace Savings NZ submissin n questins raised in the Discussin Dcument 1 Will prviders be able t check the eligibility f KiwiSaver applicants when they ask t transfer their savings frm Australia? Or will they just accept any transfer f savings frm an Australian scheme prvider? A. We believe New Zealand prviders shuld be able t rely n written cnfirmatin frm the Australian prvider, when accepting the transferred the funds, that the funds cme frm an Australian cmplying superannuatin scheme. 2 What infrmatin frm Australian prviders will be required fr KiwiSaver prviders fr a specific member? Such as the persn s Australian tax file number (Australian equivalent), the Australian scheme s tax file number. See sectin 56 f the KiwiSaver Act A. There appears t be n bvius additinal Australian scheme data relevant t the transfer. 1

5 B. We questin whether Sectin 56 is relevant t a transfer f this nature? This Sectin appears t be aimed at preventing multiple KiwiSaver accunts and ensuring that the ld scheme prvider gives infrmatin relevant t a KiwiSaver transfer? 3 Can KiwiSaver prviders als ring fence any earnings r lsses n Australian surced savings (in additin t ring fencing the principal amunt), s that the earnings f a member s accunt are separately identifiable as being n New Zealand surced savings and Australian surced savings? A. KiwiSaver prviders asked have suggest that there is n technical impediment t having a third KiwiSaver accunt fr receipt f the amunt transferred and cllectin f the relevant scheme earnings. B. Such an accunt wuld be deemed nly fr receipt f Trans Tasman transfers and as such wuld nt attract a Member Tax Credit. 4 When the Australian surced savings are transferred back t the persn s Australian superannuatin accunt after their membership is deemed invalid, what happens if the Australian accunt has been clsed? Will the savings be able t be transferred t an Australian superannuatin scheme f the persn s chice? A. We cnsider it wuld be preferable t prvide fr return t the previus scheme as a default psitin if that scheme is still pen and is able t repen the accunt. Otherwise, a mechanism using an Australian gvernment agency might be needed t accmmdate returns f this nature. Alternatively, the individual cncerned may be allwed t verride this by having chsen anther prvider. This des pse a ptential prblem in that the KiwiSaver prvider wuld nt have any bvius way f knwing that the scheme chsen by the member is a cmplying scheme in Australia. 5 Is a persn s KiwiSaver accunt clsed after their membership is deemed invalid and all f their savings have been paid t Inland Revenue r back t the Australian prvider? A. The thery wuld be that it was never pen in the first place it related t an invalid membership. Mst trust deeds wuld prvide fr the accunt t be clsed if the balance is zer. Other cmments n the cntent f the Discussin Dcument 1 Any New Zealand surced retirement savings that are transferred t Australia will nt be able t be transferred t a third cuntry. T withdraw savings after emigratin t a third cuntry, a member will need t transfer the savings back t New Zealand s any member tax credits can be recvered by the Crwn. A. If payments ut f Australia are t be allwed, a mechanism wuld need t be established fr this t happen thrugh an apprpriate Gvernment agency, such as Inland Revenue. This is because the persn s previus KiwiSaver accunt will have been clsed after the transfer and, in the circumstances described, the persn wuld nt be eligible t apply t jin KiwiSaver (i.e. nt NZ resident). Additinally we cnsider that KiwiSaver Prviders wuld be reluctant t agree t receive the funds slely fr the purpse f refunding Crwn cntributins t the Crwn and the balance f the residual accumulated savings t the persn in their new cuntry f residence. 2 If a member permanently emigrates frm New Zealand t a cuntry ther than Australia, any Australian surced retirement savings may nt be transferred frm New Zealand t the third cuntry. A. This seems t be the cntra psitin t the pint made at 1 abve. Presumably the alternatives is t seek a return f funds t Australia r t retain them here in KiwiSaver until a benefit becmes payable. 2

6 3 A retired member may access the Australian surced savings at age 60. This is cnsistent with the Australian rules n the withdrawal f retirement savings, and ensures that a persn is nt disadvantaged by mving frm Australia t New Zealand. A. It wuld be useful fr the legislatin t spell ut what retiring means (e.g. actually ceasing all wrk, leaving the current emplyer being 60+ r just reaching age 60?) as it is described in the applicable Australian legislatin. 4 The member tax credit will nt be calculated n Australian surced retirement savings after they have been transferred t New Zealand. A. Transfers f this nature are nt generally cnsidered t be cntributins. They are a separate categry f depsit and are usually recrded as such (Nte the Gvernment Actuary s reprt t Parliament which distinguishes transfers frm cntributins in the statistical data.) 5 Australian surced retirement savings may nt be diverted t a member s mrtgage repayments under the mrtgage diversin facility. A. We wuld pint ut that Mrtgage Diversin is n lnger available t new KiwiSaver members. 6 Australian superannuatin funds are taxed n their earnings at cncessinal rates (15 percent) and pensins paid ut f such funds are typically tax free after 60. Therefre, Australia impses a limit (a nn cncessinal cntributins cap ) f AU$150,000 n the amunt f cntributins that an individual can make frm nnwage surces in a particular year. A. We cnsider that the Australian legislatin shuld recgnise that transfers f this nature, frm a KiwiSaver Scheme, are nt cnsidered t be cntributins under the New Zealand rules, and as such that there shuld be a mechanism fr similarly distinguishing Trans Tasman transfers int cmplying Australia Schemes. Surely the Australian regulatins allw fr the transfer f accumulated benefits between schemes withut the transferred amunt being regarded as a new cntributin? 7 Transfers frm KiwiSaver t an Australian superannuatin scheme will be subject t the cap. A. Applying the salary cap t transferred amunts will, ver time as accumulated balanced grw, discurage transfers and thus encurage the prliferatin f accunts. Nt applying the salary cap t amunts transferred frm ther schemes shuld encurage the aggregatin f accunts. 8 Any increase r decrease in the amunt transferred due t investment returns/lsses r fluctuatins in the exchange rate will need t be brne by the member, nt the KiwiSaver prvider r the Crwn. This is cnsistent with the plicy intentin f sectin 59D. A. Sectin 59D culd pssibly be deficient when cnsidering the psitin f an amunt transferred t an invalid membership accunt frm a previus KiwiSaver accunt that was nt invalid. 59D can wrk nly if, fr this purpse, the amunt transferred is cnsidered t be a cntributin. Then, under 59D (4) the Cmmissiner wuld refund the transferred amunt t the ld scheme prvider, being the ther persn making a cntributin. This assumes that the ld scheme trust deed allws fr the funds t be returned and fr the accunt t be reinstated, pssibly withut the cnsent f the persn cncerned the ex member. An amendment t 59D culd perhaps be used as the base fr prviding specifically fr the return f any amunts transferred frm a previus scheme, whether it be anther KiwiSaver scheme r ne frm Australia. Observatins n the Draft Legislatin 1) Sectin 6(1): 3

7 a) Shuld the clause number be 4A t fllw 4? b) Crss reference t Australian legislatin at this pint is unhelpful. Preferable t agree a definitin t be used in NZ (therwise it is likely t be taken t be attaining age 60 in practice). Meaning f necessary mdificatins fr K/S scheme trustees is nt clear. 2) Sectin 6(3): a) Again, shuld the clause number be 14A t fllw 14? b) It wuld be helpful fr the heading fr clause 14 be changed t say ther than Australia? Shuld subclauses (1) & (2) be said t be subject t clause 14A? c) Subclause (1) f clause 14A seems t preclude the ptin t take a cash payment after a year, excluding Crwn cntributins, if mving t Australia? Is this intended? Submissin Ends