KiwiSaver should be made compulsory and contribution rates should be increased, the scheme’s founder Sir Michael Cullen told a conference yesterday.
The former Finance Minister has also mooted making annuities compulsory or implementing a one-off tax on KiwiSaver schemes at maturity to help reduce future New Zealand Superannuation costs.
Under Sir Michael’s plan, KiwiSaver would become compulsory in 2016 with minimum contribution rates of 4% for employees and 4% for employers, not far below Australia’s compulsory super rate of 9%, soon to be raised to 12%. “With the number of KiwiSavers already far higher than forecast it is not a long step to make the scheme compulsory, tighten some of the criteria, and, over time, gear it up to a level far closer to that planned in Australia,” he said.
“At that point the relationship between KiwiSaver and New Zealand becomes one for serious discussion.” Sir Michael said KiwiSaver in its current form may boost retirement incomes but does nothing to reduce the cost to taxpayers of NZ Super. He explored two options to reduce this cost: in one scenario KiwiSaver members would be required to use half of their accumulated savings to purchase an annuity, with the state topping up those who had a retirement income lower than the current superannuation formula.
This would reduce the cost of NZ Super to under 2% of GDP by 2050 and next to nothing by the end of the century, he said. The second option, which had “significant advantages in terms of simplicity and fairness”, would be to raise the age of NZ Super eligibility to 67 and put a “withdrawal” tax of 10% or 15% on KiwiSaver that would apply at maturity or when people permanently emigrated.
Sir Michael said this option would reduce the cost of NZ Super by about 5% of GDP, would be administratively much simpler than the first option and would avoid the difficulties of income testing, although any changes in the area would be “fraught”. He also suggested transferring state asset shares into a holding company owned by the New Zealand Superannuation Fund, which he also set up during his time as Finance Minister.
Prime Minister John Key has promised to resign before making any changes to NZ Super eligibility.