Newsletter No. 60 December 2006
Also available as: ISU Newsletter No. 60 [389 kB PDF]
Within this newsletter…
1. Overview
The KiwiSaver Act 2006 ("the Act") has to a large extent now been brought into force with effect from 1st December 2006 together with the KiwiSaver Regulations 2006 which have established the processes necessary to establish a KiwiSaver Scheme (KS) or Exempt Employer Status (EES).
The Government Actuary is the Regulator/Registrar and this Newsletter addresses how we propose to administer the processes within the Insurance and Superannuation Unit (ISU).
These processes include registration of:-
- a new KS
- conversion to a KS from an existing Registered Super Scheme (RSS)
- a "bolt-on" section to an existing RSS
Additional responsibilities include:-
- approval of an EES
- review of anticipated Trust Deed amendments to enable a "bolt-on" or reflect changes within the tax environment
- approval of transactions under sections 9BAA and 9BAB of the Superannuation Schemes Act 1989 (SSA) to both registered superannuation schemes and KiwiSaver schemes.
The remainder of this newsletter deals with the specific issues.
2. Personnel
The nucleus of the team is unchanged and comprises Gavin Quigan, Manager ISU and Lesley Carrig, Superannuation Officer as well as myself, David Benison, Government Actuary.
We will add to this team as needs develop.
We remain appreciative of confidential information provided to us by industry participants as to potential work volumes to allow us to manage the work efficiently both for our own work flow and to assist the speedy return of documents to our clients.
3. Registration
The actual process specified in the Act follows a similar process methodology to that which currently applies for registration of a scheme under the SSA.
There is no application form specified within the regulations for registration. We therefore expect the application from the trustee(s) to take the form of a letter that contains all the applicable information, as is set out in appropriate part of schedule 2 of the Act together with a statement of fees as detailed in schedule 1 of the Act. When filing the application please ensure that:-
the application, if not made by the trustee(s), is made "explicitly" on behalf of and with the authority of the trustee(s).
the fee of $100 is included only for the New KS registrations.
we receive a copy of the complete deed signed and dated.
the trustee/solicitor certificate required is signed and dated and does not contain any qualifying phrases like "in the opinion of".
Registration takes effect once the KS is entered on the KS Register by the Government Actuary.
New KS Registration
The requirements for Registration of a new KS are set out in the sections of the Act beginning at section 131, together with the detail in schedule 2 part 1 of the Act.
It is our intention to deal with each application in turn once all the required information is received. To this end we have included our current internal checklist for your information as Appendix 1 of this newsletter.
We would highlight the need to include the certificate signed by the Commissioner of Inland Revenue. We would also highlight the importance of the certificate signed by the trustees or the trustees solicitor which certifies that the application does not contain any provision contrary to the KS rules.
Conversion to KS from RSS Registration
The requirements for registration on conversion to KS from a RSS are set out in the sections of the Act beginning at section 135, together with the detail in schedule 2 part 2 of the Act. To consider the application we will also need the draft amendment to the existing RSS deed and the draft explanatory material to be provided to members.
Note that provisional registration and its effects are covered in sections 136-7.
Registration would take place after the written consent of the employees and participating employers has been obtained.
Bolt-on (or Umbrella Trust) Registration
The requirements for registration of a "bolt-on" section to an existing RSS are set out in the sections of the Act beginning at section 148, together with the detail in schedule 2 part 3 of the Act.
This section covers where a new KiwiSaver section is added to an existing RSS. "Bolt-on" has become the accepted jargon to describe the activity with more precision.
We draw your attention to the items in section 149 and the requirement in section 154 requiring members to be notified in the next annual report to the details of their right to elect to transfer to the KS.
4. Exempt Employer Application
The requirements for EES are set out in the sections of the Act beginning at section 24. We also refer you to regulation 5 concerning the additional supporting evidence required. Included as appendix 2 of this newsletter is our current checklist which we will use when processing an application.
5. KiwiSaver Regulations 2006
One item needs specific comment as there has been concern at the level of reporting required. The Statistical Return required is a "snapshot in time" and will be used only for annual consolidated reporting required for the Minister under section 194 of the Act. It will enable trends to become visible as the overall KiwiSaver regime ages and will provide the Minister with information about take up, cash flows and other social and economic data. The annual trustee(s) report including audited accounts which the trustee(s) will sign off each year will continue to be reviewed from a compliance perspective by the ISU staff.
6. KiwiSaver Fees Regulations
The new Schedule 2 of the KiwiSaver Regulations 2006 sets out the GST inclusive fees payable in respect of the operation of KiwiSaver schemes.
7. Unreasonable Fees
Rule 2, KS Rules, requires that fees charged to members of a KS scheme must not be unreasonable.
This is a continuing requirement. It applies on registration, and afterwards. See Schedule 1 clause 2 and Regulations 11 and 12, and also section 127.
It is my task to verify whether these provisions are complied with.
In undertaking this task I expect to take some comfort that the fact that the trustee(s) or the trustee(s)' solicitors have confirmed, as part of the application for registration, that the trust deed application does not contain any provision contrary to KS rules as implied in section 126 and schedule 1.
When applying schedule 1 clause 2 of the Act at outset prior to registration, I will consider only those contributions and relevant fees which are made through the IRD to KiwiSaver and any fees associated with KiwiSaver. I will exclude contributions identified in section 68 which are not counted as contributions under the Act.
In determining whether fees are unreasonable in any particular instance, one factor that is likely to be relevant is a comparison between the fee structure of the particular KS and that of other similar retirement products.
However the fact that it can be shown that the fees in one scheme are similar to those charged in another scheme does not prove they are "not unreasonable". The fees in both schemes may be unreasonable. All applicants for registration should consider the provisions of Regulations 11 and 12 before fixing fees.
Following registration, consideration of unreasonable fees will be part of the review of each audited annual report. The legislation also provides for this issue to be raised at any time.
8. Preferred Provider (sections 46 to 49)
I understand that the some industry participants consider that section 47 of the Act is wide enough to allow a person to select a preferred provider without entering into a formal (or written) participation agreement.
It is however my view that market best practice would be for the trustee(s) to expect an employer to enter into a participating agreement to meet the requirement of section 47(1)(a).
A participation agreement may also be useful at a later date in that members associated with that agreement can be identified in respect of any application of section 9B to 9BA inclusive of the SSA as implied by section 121 of the Act.
I note that the trustee(s) is still liable for providing the investment statements to members. However, section 43 also provides that the employer must provide certain information including the investment statement for the scheme to employees if they select a preferred scheme.
9. Section 9BAA and 9BAB
The SSA has been amended to include the ability for trustee(s) of registered superannuation schemes and employers within a multi-employer registered superannuation scheme to apply for exemption from the requirement to obtain members and beneficiaries written consent to transfers as required by section 9B. These new sections have come into force with effect from 1st December 2006.
At this time I will not be issuing Guidelines as I wish to consider any applications on a case by case basis. However I would draw your attention to the detail of the Australian successive fund transfer process (to be found in APRA Superannuation Circular No. I.C.4)
In relation to the requirement to notify every affected member and beneficiary that they have the right to make a submission to the Government Actuary about the transfer proposal, I would expect them to be given no less than 28 day to make that submission. I would also expect that members will be given sufficient comparative information including the amount of any scheme reserves/surplus to enable them to make their own value judgement. I note that the trustee(s) of the receiving scheme will be required to meet their Securities Act 1978 responsibilities in respect to offer documentation.
10. Website Re-launch
We have re-launched our Insurance and Superannuation Unit website which contains pdf and html versions of Government Actuary Newsletters and Annual Reports. In due course it will also have available an electronic version of the KS Register and the EES Register. Any feedback on the content and layout of the site would be appreciated.
11. Office Closure: Christmas and New Year
The office will be closed from 25 December 2006 to 2 January 2007 inclusive.
David Benison
Government Actuary
Appendix 1: Checklist for Registration of New KiwiSaver Scheme. [sections 131-134] [47 kB PDF]
Appendix 2: Employer exemption from KiwiSaver [217 kB PDF]