The creation of a single trans-Tasman economic market
Since the 1980’s, Australia and New Zealand have been working together to create a single trans-Tasman economic market. Starting with the signing of the Australian and New Zealand Closer Economic Relations Trade Agreement on 1 January 1983, this relationship continued to grow and deepen through the creation of more specific arrangements relating to areas such as trade, tax, sharing of information, and legislative alignment.
The birth of a retirement savings portability regime
With Australian’s booming superannuation market, New Zealand’s newly created ‘KiwiSaver’ concept, and an increase in the number of New Zealanders immigrating to Australia, it was only a matter of time before some sort of trans-Tasman portability regime of retirement savings was created.
And so one was. In 2009, Australia and New Zealand entered into a Memorandum of Understanding to establish a trans-Tasman retirement savings portability scheme. It was envisaged that this would enable Australians and New Zealanders to transfer their retirement savings across the Tasman when they moved, making it easier for people to move freely between the two countries. By November 2012, both countries had passed the necessary legislation, and the regime comes into effect on 1 July this year.
So what does this regime mean for New Zealanders?
Since the regime is not compulsory, if you are a provider of a KiwiSaver scheme, your first decision will probably be whether you want to partake in the regime (knowing that if you do not, members can transfer to another KiwiSaver scheme that will offer this feature, but that if you do, your internal systems may need to be updated to cope with the requirements of the regime, which may be costly and time consuming).
If you do decide to participate, then you will need to consider (among other things) the following:
- Updating your website and/or providing some form of communication in order to assist people with understanding what this regime can do for them. Positives that can be focused on are that it enables members to move their savings with them when they move and to consolidate their retirement savings in one fund (instead of some in Australia and some in New Zealand), which can mean less fees and hassle.
- Updating offer documents to ensure they accurately reflect this new regime and your participation in it.
- Ensuring that your systems will allow amounts brought over from Australia to be tracked for the life of the investment and that they will safeguard you against breaching Australian requirements that continue to apply to those amounts. (Those requirements are that there can be no withdrawal of funds for a first home, funds can be withdrawn at the Australian retirement age – currently 60 – not the New Zealand retirement age, and funds cannot be passed on to any country other than Australia.)
Due to the changes to the KiwiSaver Act 2006 in 2011, trustees have had their roles narrowed to that of a supervisor, and therefore are no longer responsible for the administration of KiwiSaver schemes. However as the trustee’s role is to supervise the manager, it does need to ensure that it understands how the regime works so that it will be able to identify any errors in judgement or non-compliance with the relevant legislation.
As for investors, they should start reading information that becomes available to them either on different providers’ websites or from workplace savings or Inland Revenue. This will enable them to make an informed decision about whether they do want to transfer any retirement savings they have in Australia, and if so, whether they will need to change providers to do so.
So is the regime all it is cracked up to be?
Firstly, the regime is not compulsory in New Zealand or in Australia. So while this is gives providers the breathing room they need to prepare administratively for the demands of this regime, it means it may not picked up by many (or any) providers. While there is a chance that the regime may increase member numbers and previously untouchable Australian superannuation funds may be accessed, there is also the risk that this may not happen, and that the providers that spent the money and the time to update their systems have no way of recovering their costs (other than from the assets of the KiwiSaver scheme).
Secondly, even after the initial cost of updating a provider’s systems, there is the ongoing cost and hassle of having to follow retirement savings that have come from Australia for anywhere from five to sixty years, just to ensure that the funds are released (currently) five years before they normally would have been and that they are not withdrawn for a first home or to go to a country other than Australia.
Thirdly, KiwiSaver funds cannot be transferred to an Australian self managed superannuation fund or any other type of Australian superannuation scheme that is not regulated by the Australian Prudential Regulation Authority, and Australian funds can only be transferred to a New Zealand KiwiSaver scheme. While the policy reasons for this are clear (that regulated schemes are less likely to erode a member’s retirement savings), this means less choice for investors. As for New Zealand providers hoping to get a piece of the Australian retirement savings pie, they may be disappointed as Australian investors, who have a wide range of investment options, decide not to move their savings to New Zealand where they only have the option of KiwiSaver (which by Australian standards is very vanilla).
While it is great to see New Zealand and Australia honouring their promises and continuing to grow their trans-Tasman relationship, the jury is still out on whether the regime will fly or flop.