After years of procrastination, the Australian government is addressing the vexed issue of superannuation portability between Australia's super system and New Zealand's voluntary KiwiSaver scheme.
A basic outline of an agreement to harmonise super transfer rules in 2009 ran to nine pages. New Zealand followed up with enabling legislation in 2010 but Australia took until early this month to amend tax legislation, in the hope of having it bedded down by July 1 next year.
Even then, further revisions of super regulations will be needed to complement the tax modifications.
This has been a particularly live issue both for New Zealanders retiring to or already living in Australia, and those contemplating returning to their homeland after spending much of their earning lifetime in Australia. It has been the subject of lengthy academic papers from researchers and the impetus has come largely from the New Zealand side of the Tasman.
In July 2010, associate professor Susan St John and Dr M Claire Dale at Auckland University published a 27-page paper. They told a gathering of super researchers at the University of NSW that Australia and New Zealand were unique in that entitlement to state pensions and super arrangements was qualified by rules on residency rather than just actual contributions, as in most other places.
So instead of having clear pay-out and portability rules, residents in both countries become entangled in a labyrinth of often conflicting, potentially inconsistent and restrictive regulations concerning definitions of residency, age limits, and cross-territorial reach of particular regulations.
This will still be true even after new arrangements are finalised. Actuary Brian Bendzulla notes that super funds and professionals will need new calculators to ascertain transfer strategies for affected individuals. In Auckland, Deloitte's Matt Johns said that those looking at portability would first have to sort out their tax implications.
Michael Woodward of Mackay Bailey, a New Zealand member firm of accounting and legal network MSI Global Alliance, says a number of MSI New Zealand clients have worked for a period of time in Australia and have built up significant super savings. "When returning to NZ they have found they are unable to cash in their super savings; often we hear of funds being forgotten about and, in most cases, clients feel powerless to manage and control the assets they physically own.
"From 1 July, 2013, New Zealanders [will be] allowed to transfer their Australian super savings to their NZ KiwiSaver scheme, giving them greater control over the savings and assets together with all the related transparency."
More than 50,000 New Zealanders moved to Australia in the past year, offset by about 14,000 Australians heading the other way, permanently. From the middle of next year, they will be able to transfer retirement savings to and from a KiwiSaver scheme and an Australian-complying super fund regulated by the Australian Prudential Regulation Authority.
The regulation requirement automatically excludes the burgeoning Australian sector of self-managed superannuation funds, which are controlled by the Tax Office, not APRA.
With a few specific exceptions, retirement savings will generally be subject to the rules in the receiving (host) country once transferred.
Transferred savings must be separately identifiable within the receiving country account, to allow administrations to insist Australian-sourced components in KiwiSaver cannot be used to buy a first home or transferred to a third country. They can be accessed on retirement from age 60.
New Zealand-sourced retirement savings must go into an Australian APRA fund, can't be on-passed to a third country and can be accessed only at the retirement age (currently 65) specified in the Superannuation and Retirement Income Act 2001.
WHAT IT WILL MEAN FOR RETURNING KIWIS
There are some differences for Australian-sourced retirement savings transferred to a New Zealand-based KiwiSaver scheme under the trans-Tasman portability scheme.
Australian-sourced retirement savings which are held in KiwiSaver can be withdrawn at age 60 only if the member is retired (as defined in regulation 6.01(7) of the Superannuation Industry [Supervision] Regulations 1994 [Aust]), which means the trustee of the scheme must be reasonably certain the person concerned is retired and will not seek gainful employment again.
Also, Kiwis returning to buy their first home in New Zealand will not be allowed to use Australian-sourced savings transferred to KiwiSaver to help do so.
Transferred savings cannot be withdrawn to assist with the purchase of a first home. However, any earnings on Australian-sourced savings may be withdrawn to do so.
There are some differences in tax between the Aussie schemes and KiwiSaver, but they are complex and the impact on returns depends upon the composition of each investor's portfolio.
- © Fairfax NZ News