www.stuff.co.nz, 1 June 2011
By Talia Shadwell
Kiwi workers forced to abandon tens of billions in superannuation funds in Australia will soon be able to transfer their retirement savings to KiwiSaver accounts for the first time.
The Australian Treasury office has confirmed that a scheme to return retirement savings to Kiwi workers who "lost" their super after leaving Australia has reached the drafting stage. The "lost" super had until now stagnated in a pool of funds reported in 2009 by New Zealand media to hold about NZ$16 billion.
But should affected New Zealanders claim their funds for KiwiSaver, or leave them to grow in Australia?
Tax experts say Kiwis should consider their options.
As the Australian dollar climbs ever higher, news that a substantial chunk of the billions of "lost" super bounty is on the cusp of return to New Zealanders may offer a sliver of hope to Kiwis feeling hard hit by a gloomy financial year.
PricewaterhouseCoopers chairman John Shewan called the trans-Tasman retirement savings portability scheme a welcome move. He said that the chance for Kiwis who had worked in Australia to consolidate their funds in KiwiSaver while the Australian dollar was "high" was a positive outcome. But he added that some Kiwis who had an existing interest in Australian super schemes may be better off leaving those funds in Australia where tax rates were much lower.
"From the perspective of New Zealanders who have previously worked in Australia and have super funds tied up over there, there is still in many instances a tax advantage in leaving the funds in Australia," he said.
"This is because Australian super schemes are taxed at 15 per cent, whereas KiwiSaver funds are currently taxed at 28 per cent or the marginal tax rate of the investor, which will generally exceed 15 per cent."
The value of the "lost" super eclipses the total balance held by New Zealanders in KiwiSaver accounts, estimated by Inland Revenue to total NZ$8b.
This is good news for KiwiSaver, according to Credit Union chief executive Henry Lynch.
"It will cost $5 billion to rebuild Christchurch", he said "so to bring those funds back is the equivalent of rebuilding Christchurch three times over."
Mr Lynch said that if even half the funds were to be reclaimed into New Zealanders' KiwiSaver accounts in a steady flow, it would have a great effect on the health of KiwiSaver's scheme providers, by increasing their capital and decreasing the costs of fund management.
He added that though from a tax perspective it made sense for Kiwis to leave their funds in Australia, he believed it was preferable to "have all your jam jars in one place" to allow savings to flourish.
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The "lost" super phenomenon was first taken to task in 2009 amid frustration from Kiwi workers who had been forced to abandon their retirement savings in Australian coffers under an involuntary superannuation scheme. The trans-Tasman portability scheme was conceived to promote closer economic ties.
The campaign was spearheaded by Finance Minister Bill English and then Australian treasurer Wayne Swan.
Mr English introduced the scheme to encourage a revolving door style of migration, curbing the one-way flow of Kiwi workers who had increasingly flocked to Australia's sunnier economic pastures: "This is an important step forward for our wider Single Economic Market programme with Australia, particularly in helping the free movement of labour between the two countries," he said in 2009. "In particular, it will allow New Zealanders and Australians to consolidate their financial affairs in the country in which they live."
Unclaimed Super
The Australian Treasury estimates the amount of unclaimed superannuation money from all former residents to be about A$14 billion (NZ$19 billion).
The Australian Tax Office absorbed A$393 million (NZ$530 million) that belonged to uncontactable or deceased people in the 2009-10 tax year.
Of this amount, A$323 million (NZ$430 million) belonged to former temporary residents who were not New Zealanders.
Kiwis keen to get hands on nest egg
New Zealand citizens working across the ditch must contribute to a superannuation scheme. Unlike other former temporary residents, Kiwis cannot transfer their money to KiwiSaver when they leave the country – even when they reach retirement age in New Zealand – due to their freedom to retire in Australia.
Victoria University student Emily Weston-Taylor, 21, said it had been frustrating to see the A$1700 (NZ$2200) she left in an Australian fund drip away after she worked across the ditch in retail, hospitality and clerical jobs for almost three years from 2006. As a Kiwi worker, she had invested involuntarily in a scheme that required her employer to contribute 9 per cent of her earnings to her savings portfolio.
Since her return to New Zealand in 2009, Miss Weston-Taylor's fund had depreciated by A$120 (NZ$160). She said she would consolidate her retirement savings in her KiwiSaver scheme where her funds were "growing" when the portability legislation comes into effect, but had decided to keep her Australian options open too.
"I have heard that small superannuation accounts can get "lost" easily if regular contributions are not being made. I would consider leaving my funds in Australia if I thought that I would return to Australia for a substantial amount of time to work", she said.