Letter to NZ Heads of Government Regarding Compulsory KiwiSaver & Retirement Savings
There is talk of new legislation that would update KiwiSaver and make it mandatory, so that anybody who qualifies and is eligible for KiwiSaver is now forced to participate. While KiwiSaver is a retirement saving scheme that does generally benefit New Zealanders, it can create some issues for Americans. Therefore, it is not something that is universally beneficial for Americans that live in New Zealand.
What follows is a letter that we have produced at Irvine Wenborn in order for any Americans to pass it on to their local members of Parliament, legislators, or those of influence within the government and policymakers.
If you'd like a PDF version of this, you can find it here.
Hello,
I hope this letter finds you well. I'm writing this, as an American that lives in NZ and understands there is the possibility of initiation of compulsory KiwiSaver.
While retirement savings is a great idea in general, it can have some unintended consequences that are not helpful, and potentially hurtful for a cohort of Americans who have chosen to settle in NZ.
There are several parties that would be affected by this legislation including:
1. US persons in NZ currently
2. US persons that are either hoping or planning to come to NZ
3. Kiwis who have lived in the US and become ‘US Persons’ and repatriated back to NZ
US Person is a technical term and includes US citizens, US green card holders, long-term US residents, which also applies to numerous NZ-born citizens who have domiciled in the US for a period of time. This is why many Kiwis can be included in the definition of US Person.
These groups are increasing in count as part of the NZ population.
US Persons have tax obligations that are unique and nearly no other country’s citizens are burdened with. The main issue is “Citizenship-based taxation” which means all US persons (not just the ‘citizen’s) are required to report their taxes to the IRS every year, and also potentially be subject to extra taxes beyond what Kiwis are subject to.
The main problem with KiwiSaver for US persons can be categorized into a few areas that include:
KiwiSaver can be interpreted as a foreign trust with a US owner by the IRS. This can create additional filing requirements to the IRS.
If KiwiSaver has contributions or distributions this can create an additional filing requirement to the IRS.
KiwiSaver will invest almost exclusively into PIE funds. These can be considered PFIC investments by the IRS which require extra reporting and potential double-tax.
The ongoing costs to Americans for holding a KiwiSaver creates a filing obligation that will range on the low end of $750 NZD per year but can easily reach upwards to $2,500k per year (and in some cases, far more). While that may not be a huge issue if someone is earning $200k per year, and receiving a 4% match from their employer ($200k X 4% = $8k of employer sponsored contributions). Most US Persons in NZ are not earning large enough salaries to offset the cost of filing, which could create more cost than benefit, simply for having a retirement account.
This does not even consider the fact that once KiwiSaver balances reach a particular level, they are more likely to owe taxes to the IRS in addition to the IRD via PIE taxes. There is not tax credit for this with the current Double Tax Agreement (DTA) between NZ and the US. In short, this equates to double taxation.
A quick note on cultural relevance is how Americans tend to despise both tax complexity and paying taxes, as cited with:
· In Gallup’s ongoing tracking data, 59% of Americans consider the amount of federal income tax they pay to be "too high," (Source: Gallup)
· Pew Research findings indicate that 60% of Americans feel they pay more than their fair share in taxes. (Source: Pew Research Center)
· A Tax Foundation literacy and perception poll found that 60% of respondents find the IRS Tax Code overly complex (Source: The Tax Foundation)
While these are simple data points and mean very little on their own, what it points to is that Americans do not like to pay extra taxes, nor do they like tax complexity. The reason this is relevant to you is that a compulsory retirement savings program for Americans in NZ adds both significant tax complexity and double taxes to the Americans domiciled in NZ.
Another common issue is for Americans to retire early (prior to age 65) but are still required to file extra forms to the IRS, despite the fact that they are no longer receiving employer matching contributions any further.
New Zealand has also made efforts to attract more Americans to come to New Zealand. This is especially relevant for the Active Investor Plus visa, which is an incentive to welcome overseas capital into New Zealand. U.S. persons make up the largest group, by far, of any nationality that has applied for the AIP visa (Source: NZ Golden Visa) at 32.8%, with the next largest nationality being Chinese Persons at 18.7%). This means New Zealand is, at one time, trying to attract the talent, capital, and intellect of people from the country where the compulsory retirement savings scheme may be detrimental. This makes New Zealand significantly less appealing for future prospects.
One alternative would be to have employers pay out the matching portion of retirement savings to an American's salary. This does not guarantee that it goes into a retirement account unless IRD decides to audit and monitor that and see that U.S. persons do, in fact, put those increased employer match contributions into something like an Individual Retirement Account (IRA). Note: this is only one option and is rather simple.
In conclusion, whilst compulsory KiwiSaver (or retirement savings) is generally a good thing that benefits individuals and society, it can be harmful to many Americans who have chosen to live in and establish their lives in NZ. This effects approximately ~30,000-35,000 Americans in NZ, but it also effects all future Americans that are considering coming to NZ.
I write this with the goal of having it be considered by the relevant parties. I do not have the reach as larger entities such as yourself, thus I am putting this information in the hands of those that can effect change.
Sincerely,
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