KiwiSaver

The government’s changes to the KiwiSaver scheme aren’t likely to put investors off it, says Ian Park, chief executive of retail banking at ASB Bank, the second largest KiwiSaver provider.

“The scheme is such a good scheme, I think it will continue to see growth and new people joining,” Park says.

He doesn’t expect the changes will prompt many KiwiSavers to take a contributions holiday.

“As more and more people are exposed to it and start to see the benefits and, I guess, see their balances rise, it gives them a lot of confidence.”

However, “generally speaking, people that are saving like to have a stable, consistent approach.”

The increase in required employee contributions from 2% to 3% of earnings won’t affect all ASB’s KiwiSaver customers.

“There’s a significant chunk of people contributing more than 2% anyway.

From that perspective, some of our customers won’t be impacted by the increase.”

Despite the changes to KiwiSaver announced in the last Budget the scheme remains the best long term savings vehicle for most New Zealanders, according to the Investment Savings & Insurance Association (ISI).

As expected the changes signalled by the Government include halving the Government-paid Member Tax Credit from July 1, making employer contributions subject to Employer Superannuation Contribution Tax (ESCT) from April 1, 2012, and increasing minimum contribution levels from 2% to 3% for both employees and employers from April 1, 2013.

The ISI said some changes to the scheme were inevitable given the problems the country faces in the wake of the Christchurch earthquakes, but that “it remains the best long term savings vehicle for most New Zealanders.”

Analysis carried out by the ISI shows that for a 25 year old earning the median income of $48,000, the overall impact of the changes would see their pot of savings at retirement increase by $35,000 (in current dollar terms) if invested in a typical default fund. The combined effect of the reduction of the Members Tax Credit and ESCT would take $40,000 out of their final account but the increase in the contribution level to 3% by both themselves and their employer adds back another $75,000.

In this scenario, the impact of raising the employee contribution from 2% to 3% would see the employee’s contributions raised by $9.20 a week.

ISI chief executive Peter Neilson says that increasing minimum employer and employee contributions from 2% to 3% will create a more sustainable savings platform, and increase the level of capital required to invest in raising national productivity while reducing dependence on foreign capital over time.

He said he was pleased the Government signalled its long term commitment to KiwiSaver by announcing its intention to carryout further work on several of the Savings Working Group recommendations, particularly around automatic enrolment (with voluntary opt-out) and changes to the tax treatment of savings.

However, he said the ISI believes the Government needs to commit to raising the level of savings over time so that eventually contribution rates are at similar levels to Australia.

“The Government could do this by introducing a defined series of small but predictable annual increases over an extended period. This would allow employers and employees to plan for these changes with confidence and allow New Zealanders to increase their level of savings as the economy improves and real incomes increase.”

Neilson also said just as the superannuation industry plays a vital role in supporting the Australian economy, KiwiSaver will also become increasingly important to the national economy over time.

“The Government are predicting that KiwiSaver will grow into a $60 billion industry over the next ten years, making it a major contributor to the future success of our country. By creating a significant pool of funds for investment in business and infrastructure projects, the country will become less dependent on foreign capital.”

He stressed though given the importance of KiwiSaver’s future role, it was vital the scheme remained predictable and sustainable.

“This will require all political parties to come together to agree on the future structure and direction of KiwiSaver. Over the next year it is important that we have that debate.”

More than a third of MPs are members of a KiwiSaver scheme, according to the latest register of pecuniary interests.

Of the 122 MPs, 44 are signed up to a KiwiSaver scheme.

The highest proportion of members was within the Green Party, with five out of nine MPs joining the scheme.

Across the remaining parties 16 National MPs are members, 21 Labour MPs, Act’s Hilary Calvert and Maori Party co-leader Tariana Turia.

Ministers enrolled in the scheme include Gerry Brownlee, David Carter, Hekia Parata, Chris Finlayson and Simon Power.

Prime Minister John Key was unable to conform whether he was a member of a KiwiSaver scheme, with the register showing he has an individual retirement plan.

“I’m a member of whatever that Government scheme is that applied to members that came in in 2002,” he said yesterday.

“I think it might be [KiwiSaver] but I’m not 100% sure.”

Prime Minister John Key has dismissed comments from Standard & Poor’s analyst Kyran Curry that changes to KiwiSaver will increase national debt levels.

Speaking to Radio New Zealand, Curry said that while Government spending did need to be brought under control it should not be at the expense of household savings.

His comments came after Key delivered a pre-Budget speech last week signalling cuts to the KiwiSaver Members Tax Credit.

“I mean Kyran Curry is a bright boy so I’m sure he can work out that if the Government actually stops to save and the private sector starts saving that increases national savings,” Key said.

He said the government intended to get savers making larger contributions themselves.

Finance Minister Bill English also defended plans to change KiwiSaver.

“The fact is KiwiSaver was put together at a time when the Government had very large surpluses, now it doesn’t have large surpluses,” he said.

“New Zealanders have realised that too much debt is not a good thing. That more savings gives them a greater sense of security. KiwiSaver is one vehicle for that.”

Labour leader Phil Goff said he was concerned the ratings agency had apparently voiced doubts over the changes.

“I’m really worried when Standard & Poor’s comes out this morning and says that the changes to KiwiSaver will discourage savings, we’re trying to do the opposite.”

“What KiwiSavers out there feel is that the contract with them has been broken, and it’s been broken unilaterally by Government alone, and that discourages confidence among potential KiwiSavers,” he said.

“Why would they go into a scheme if the government changed its mind every second day and changed the conditions in a scheme that they will effectively be locked into?”