Taxation (KiwiSaver, Student Loans, and Remedial Matters) Bill

I assume this is the part that is relevant to the excellent submission we received from—

💬 Hon Chris Hipkins: I’m sure he’s read it.

Well, I sat on the select committee in fact, so I’m doing more work than the Minister’s doing, but that’s not a challenge—but that’s not a challenge.

Now, returning to Part 1 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Bill, the issue I want to discuss is the excellent submission we had at the Finance and Expenditure Committee from Tim Fairhall, who appeared before the select committee. He is a remarkable young New Zealander, a Down syndrome person, who has worked full time, five days a week and has taken a full part in New Zealand society. But he acknowledges that he will unlikely live to 65 years of age. He has a brother living, I think, in Italy, from memory, his best friend lives in Canada, and he wants to use his KiwiSaver for the opportunity to go and travel in his latter years. Certainly that is a plan that he intends to undertake before he is 65 years of age.

So I know that the Minister has accepted an amendment to KiwiSaver to allow people with illnesses such as this—or with conditions, I should say, such as this—to have early withdrawal of KiwiSaver funds for a person that doesn’t expect to live to 65. My question to the Minister is quite a serious one: how will he now monitor applications? How will applications be received? Who will be the decision maker? Because whilst we’ve moved, and the Parliament I think is fully in agreement with cases such as Tim Fairhall, we do not want to see this become a loophole by which people can choose to withdraw from KiwiSaver arguing, factually incorrectly, that they may not live till 65 years of age. So my question is quite a serious one. I want to know what work is being done now around the approval process. I want to know who actually makes the decision. How does a person who is in the situation similar to Mr Fairhall—how does he or she make an application? What supporting documentation would they be expected to present to the decision maker, who the Minister is going to tell us about shortly, so that this becomes something legitimately used for people such as Mr Fairhall and not a loophole for people to try and extract themselves early from KiwiSaver for some nefarious-type reasons that they might have.

I won’t take further time in this committee stage, but I look forward to the Minister rising to answer those quite genuine questions I’ve raised.

Fantastic, and lovely to be here this morning, and nice to see the House pepper-potted with a whole lot of Ministers at this early hour of the day. It’s very good, contributing strongly to the economy, obviously.

Now, I wanted to deal with this issue around clause 14 of the bill. This is the amendment around the application date for KiwiSaver members. I think you will be aware that clause 14 would allow KiwiSaver members to change their contribution rate by giving notice to their scheme provider or to IRD. Currently, members can only make changes through the employer. As you’re aware, one of the things we want to do is we want to make sure that people have the opportunity to contribute as much as possible to their KiwiSaver over time. We’ve had these artificial restrictions around the different rates that they can contribute at, we have the minimum of 3 percent, and then we have these jumps up to 8 percent. One of the big changes that we made was to actually change the rates so that it is much more permissive in terms of 3, 4, 6, 8 percent and up to 10 percent of gross salaries. The big issue that we were trying to address in the Finance and Expenditure Committee is this issue around how you make sure that you can change your rate easily. Hopefully, in many cases, that means a move upwards in terms of the rate, so a higher contribution. So when people get to their retirement, they’ve got more banked in their KiwiSaver.

I think the big issue here was the issue around the process that KiwiSaver providers had to go through. At the moment, it was very, very restrictive because they could only do it through an employer. That meant that there were times when the employer was in a situation, or their administration might not have been so good, where there was still the lag time that went back to the IRD. In fact, I’ve met many people who have been in a similar situation. I’m going to talk particularly about a lady called Georgina Burgess, who actually had a system where she invested in a KiwiSaver scheme, she wanted to change her rate, and she had a great deal of difficulty actually trying to find out what a rate was. But the process to go through her employer was one that made it very, very difficult for her to actually achieve it, and it actually ended up with her changing her KiwiSaver provider. It was actually only at that point, even after making inquiries of her KiwiSaver provider, that she could determine the rate that she was on. I think this is a really important aspect of the bill. I think the flexibility that this brings in is a very, very important part. I think, in terms of future-proofing the system and the KiwiSaver provisions going forward, it’s a very, very substantial part to this bill.

So in terms of the specific requirements, the change would require IRD to pass on a member’s request to change their contribution rate to the employer. So if a person goes to the IRD directly, then the IRD has this obligation back to the employer, because, of course, that’s where all the deductions take place, at source.

There is this issue around the employer needing to action it. That is a question that we need to make sure that there is adequate provision for in the IRD—that the system in place does actually mean that if someone has gone directly to the IRD, that the employer does make that change. I think that’s an important aspect, and it’d be quite interesting to get the Minister’s view on that, in terms of making sure that there is certainty around those instructions being passed on. I do note the change doesn’t take place until April 2022, or an earlier date, but that is crucial if we are to move to this more flexible process—that in fact we have the institutional arrangement in place to make sure those people’s wishes, the KiwiSaver depositors’ wishes, are actually carried through and implemented appropriately.

Thank you, Madam Chair. I wanted to just follow on from the contribution of the Rt Hon David Carter, because I absolutely understand the need to try and, I guess, accommodate the likes of Tim Fairhall, his requirements, and clause 12B of the bill does that. But the really interesting challenge with this, and it was mentioned by David Carter in his contribution, is exactly how you determine that. In my time in this unusual business, I’ve had people come into my office who have, in fact, cashed their KiwiSaver in for the very reason that this clause is being inserted. They have gone off and done their thing, with a doctor’s certificate telling them they’re not going to live any longer, and five years later they’re still around and they’ve got no cash. It’s a very real issue. It happens with life insurance as well. People take their life insurance out, go off and spend it. I suppose it gets back to David Seymour’s euthanasia bill, to some extent. But it is a very interesting challenge, because you take your life savings, off you go, and then, lo and behold, you’re still around. That’s a very real challenge for this as well.

I spent some years as the chairman of Special Olympics, which has a whole lot of members—in fact, thousands and thousands of members—in exactly the same situation as Tim Fairhall, who have a potentially life-shortening condition, who have a job, and who are working away like every other New Zealander and contributing to KiwiSaver but have the opportunity to withdraw it early for this reason. I think it’s going to be very challenging to establish that.

It’s equally as challenging—and in the Special Olympics case, it’s very challenging—to understand the degree of, for example, in their case, intellectual disability: which qualifies as a special Olympian and which doesn’t? This bill raises this very same issue, and you can see why for years the Inland Revenue or the taxation department have grappled with this situation, because it’s a very difficult situation to overcome. I, like David Carter, will be very interested to see what the Minister’s view of this is and how it might be managed, because it will be critical. It will be tested for all sorts of reasons, and it is a very real challenge.

I mean, getting on to KiwiSaver itself, I think that KiwiSaver is a great asset to New Zealand and to those people who are part of it, and I urge all New Zealanders to be part of it, but, of course, it is, in challenging financial times, the first thing people tend to look to to get themselves out of financial difficulty or to make their lives more comfortable. Through our offices, we get numerous, I guess, requests—some of them quite angry—to withdraw their KiwiSaver or access their KiwiSaver to keep themselves going. So I think it is important that we have rules around it, although for those of my age who have got a KiwiSaver sitting around now and you’re in the high-risk zone, she’s not too good. I think you probably would’ve dropped 20 percent in the last few weeks, so I’m hoping I don’t get booted out—

💬 Rt Hon David Carter: Are you watching it regularly?

No, I’m not, and I hope I don’t get booted out of here in September, because I might need the cash! But it would be tricky.

Actually, just on that point, it’s another interesting point because in my earlier days, I did chair a superannuation fund. The superannuation rules in New Zealand have changed so often. I know this is just slightly off the point, but it’s very relevant to the point—very relevant to the point. They had a terminal date, so when you left the superannuation fund, you took your cash. Of course, right now, you would not be wanting to take your cash out of a superannuation fund, were you part of it, and so KiwiSaver has got to have that flexibility as you get out the other end of it as well. So there’s a whole lot of, I guess, very interesting situations that arise as a result of—I was going to say “fiddling”, but I shouldn’t say that—tinkering with this kind of legislation, because it is a tricky thing to do. But I do accept that this is a very good effort to achieve a result for Tim Fairhall and all of his friends.

I don’t want to go on any longer on the issue, but it is a tricky issue and I congratulate the Parliament on it if we can get this through in one piece and make it work. I think it’s a well-worthwhile piece that’s added to this bill. Thank you, Madam Chair.

Thank you very much, Madam Chair. Look, there’s a couple of questions that came up. I’m happy to answer them, but I’m only really keen to answer each of the issues only once. I don’t want to waste the Committee’s time, and I hope the members on the other side won’t as well.

First of all, Mr McKelvie, I think that of any member in this House, you’re probably going to be OK when you retire. You know, I don’t want to cast aspersions, but you’re going to be OK.

First and foremost, let’s acknowledge that KiwiSaver was set up as a retirement scheme for New Zealanders. There is no doubt about it, and that’s how the vast majority of New Zealanders do use their KiwiSaver. Let’s also acknowledge, though, that there are a couple of situations under which New Zealanders are able to access their KiwiSaver funds before the age of 65. One of those is extreme hardship, and they’ve got to be able to prove that before they can withdraw their KiwiSaver funds, and the burden of proof is quite significant and I think it’s quite robust.

Because of Tim Fairhall’s case, this has come before Parliament, and we have agreed with this case. Again, I think that the system for approving someone to withdraw their KiwiSaver funds because they can prove they’re not going to reach the age of 65 is very robust as well. The proposed legislation would create a list of life-shortening conditions, and then it would be up to the KiwiSaver member to provide medical proof that they have those conditions.

I take Mr McKelvie’s point that it may well be that someone does present with a life-shortening condition and then they get better. I’m also well aware of Mr McKelvie’s point that life insurance will also pay out if someone has one of these life-shortening conditions—for example, terminal cancer—and if they then go on to have a full life, fantastic and that is awesome. I suspect that that would be a very small minority of cases, but I really don’t think that this is a clause in KiwiSaver legislation that people will seek to game.

I really do think that the conditions we’ve placed around this—i.e., medical proof that you have one of these life-shortening conditions—is, again, pretty hard to game or to use in a fraudulent manner. It would require, first of all, the person to have fraudulent intentions; second of all, for the medical profession to act in a fraudulent manner. Again, I just don’t think that that will be the case.

With regard to the Hon David Carter’s point around—sorry, the Hon Carter?

💬 Rt Hon David Carter: Who do you apply to was my question as well.

Yeah, who do you apply to—this will be run through the Inland Revenue (IR). It’ll be run through the IR.

Mr Bayly, your point around KiwiSaver contributions, when they go up and down: as you’re probably well aware, sitting on the select committee and being right over Business Transformation—release four coming out in Easter of this year—that includes KiwiSaver. It is a massive, massive undertaking: $1.4 trillion worth of funds, I think, are being transferred from the old system to the new system, but as a result of that, the Inland Revenue is going to have a much greater oversight of the whole KiwiSaver scheme.

So what we are saying is you provide your information to Inland Revenue. They then go to the employer, and our recommendation is that in the next possible—or practical, I should say—pay round, the employer will enter that information and make the changes. So, for example, if you provide information to IR and your next pay day is tomorrow, then I don’t think it is practical to expect them to change the rate within 24 hours, but if the next pay day is in two weeks’ time, then I suspect that that is a practical time to have that change reflected in your payslip and in your KiwiSaver contribution.

One thing I would say is the level of data and oversight that Inland Revenue will have under Business Transformation is significantly greater than it has now, also keeping in mind, as also mentioned, that this doesn’t come in until 1 April 2022. Inland Revenue has plenty of time to work with employers to make sure that the processes for changing someone’s KiwiSaver contributions are robust and are done in a timely manner, and I expect any wrinkles will be ironed out well before 1 April 2022. I hope that answers both the members’ questions. Thank you.

One issue I wanted to just talk about was the student loan arrangements, particularly under clause 45B, amending section 72. They relate to custodial institutions as well. But this is the issue around student loan deductions from scheduler, election-day, and casual agricultural income, and also the exemption threshold for student loan repayments. This bill has quite a lot to do with student loan issues, actually, in terms of making sure that they are appropriately dealt with and are actually slightly more flexible—

💬 Hon Stuart Nash: That’s Part 2, mate.

CHAIRPERSON (Hon Anne Tolley): Yeah. It’s actually in Part 2.

Section 72?

💬 Rt Hon David Carter: Yeah, Part 2.

Oh, sorry. We’ll move on.

CHAIRPERSON (Hon Anne Tolley): I think there’s a shout in the whip’s fund, yes.

The question was put that the amendments set out on Supplementary Order Paper 453 in the name of the Hon Stuart Nash to Part 1 be agreed to.

Amendments agreed to.

Part 1 as amended agreed to.

Part 2 Amendments to Student Loan Scheme Act 2011