THE KIWI SAVINGS MODEL

The most significant difference between New Zealand’s KiwiSaver retirement exchange and the proposed South African structure is that New Zealanders make voluntary contributions, while it is proposed that South Africans will make compulsory contributions.

According to the KiwiSaver website, KiwiSaver is a voluntary, work-based savings initiative that is designed to be hassle-free, so it's easy to maintain a regular savings pattern.

There are a range of membership benefits to encourage members to save. They include a kickstart amount of NZ$1 000, regular contributions from employers and an annual tax credit for members.

KiwiSaver schemes are managed by private sector companies called KiwiSaver providers. Members can choose which KiwiSaver provider to asset managers chosen by members (see “The Kiwi savings model”).

RETIREMENT EXCHANGE

The South African version, if implemented, would see the establishment of a “retirement exchange” under the auspices of SARS, to which your retirement fund contributions would be paid by your employer, together with your use to invest their money.

There are no government guarantees on savings – members make their own investment choices at their own risk.

KiwiSaver savings are made up of contributions by employees and employers to individual accounts in the names of members, plus or minus investment returns, minus any withdrawals, fees and taxes. However, they can also be used by selfemployed people.

All KiwiSaver schemes are regulated by the New Zealand Financial Markets Authority. Additional measures are in place to make sure the schemes are competitive and members’ best interests are looked after.

New Zealand’s tax authority, Inland Revenue, administers members’ contributions, mainly through the payas-you-earn (PAYE) tax system. Inland pay-as-you-earn (PAYE) tax. Your retirement savings will then be directed to a product provider.

The document does not state how the provider would be chosen, but in New Zealand employers can choose a default provider, and individual employees can opt out if they choose. However, the product provider will have to be listed on the exchange and will need to meet Revenue’s main responsibilities under KiwiSaver are to: provide employers with information packs to pass on to employees, receive member and employer contributions, transfer contributions to the right KiwiSaver scheme provider for investment, allocate people who don’t make a choice to default schemes, administer requests for optouts and contribution holidays, and help build public awareness of the KiwiSaver initiative.

Members are able, under certain conditions, to make an early withdrawal of part (or all) of their savings if they are: buying their first home, moving overseas permanently, suffering significant financial hardship, or seriously ill. strict standards set by government before being listed.

A big advantage of a system involving SARS is that it will make it difficult for employers to avoid handing over your retirement contributions to your fund – an ongoing problem with many umbrella funds, such as the Private Security Services Provident Fund.

The structure could also reduce the significant amounts paid as a percentage of contributions and/or accumulated assets to financial advisers who facilitate membership of retirement funds, particularly umbrella funds. Strict product rules would protect consumers against complex products, which serve the interests of providers rather than members.

EXISTING FUNDS

There is no indication in the presentation document of how the proposals will affect existing occupational funds, be they stand-alone funds, umbrella funds or retirement annuity funds.

The proposals suggest a default option could be a governmentprovided defined contribution fund for those who cannot decide on a product provider. The default option will be registered and managed by government in terms of the Pension Funds Act. Treasury also proposes that the default option could be a home for billions of rands of unclaimed retirement fund benefits.

The proposed exchange structure is seen by Treasury as a possible way “to ease the process of making it mandatory for employers to provide employees with retirement savings vehicles”.

The exchange may operate alongside a compulsory government scheme, as in New Zealand, or it may be used to facilitate mandatory membership of a private retirement scheme, as is the case in many countries across the world.

The proposals are likely to be included in a retirement fund discussion document titled “Charges in South African Retirement Schemes”, which is due to be released by Treasury within the next few weeks. This is the fifth and last of five Treasury papers dealing with the reform of private sector retirement funding.

The other four discussion papers covered subjects ranging from tax to the preservation of retirement savings for retirement.