KiwiSaver

Press release: “We should brace ourselves for a game of KiwiSaver political hot potato, says Ernst & Young.

National has refused to let taxpayers know whether they support the new turbocharged version of KiwiSaver – employer contributions – and it will seek to embarrass the Government in any way possible,” says Jo Doolan, Tax Director at Ernst & Young.

Employers and employees alike will hardly be filled with confidence as the introduction date nears, she says.
Last week, in a barrage in the House, National’s deputy leader Bill English alleged that the fiscal cost to the Government of the tax incentives will be more than the incremental household savings to come from KiwiSaver, citing Treasury forecasts in support. The forecasts were rejected by Hon Dr Michael Cullen.

“Dr Cullen should be congratulated on the ingenuity of his turbo-charged KiwiSaver and the fact this is being phased in to allow employers to deal with the financial cost. But shouldn’t employer contributions – such a fundamental change to KiwiSaver – be agreed to by both the major parties? If they can work together on anti-smacking issues then surely setting a framework for savings is also important enough to warrant such an agreement?

Wage negotiations – will we see ‘KiwiSaver discrimination’?

“We really do not know how compulsory employer contributions to KiwiSaver will impact on wage negotiations,” says Doolan.
At a recent Ernst & Young client seminar Cullen reminded attendees of just how little influence the Government really has over wage negotiations given the low percentage of private sector employees who are actually part of collective bargaining agreements.

“Take for example, two employees who perform the same and have the same experience. One elects to go into KiwiSaver the other does not. Can the employer offer more pay to the one who does not opt to go into KiwiSaver to compensate them for the fact the employer does not have to fund their compulsory KiwiSaver contributions?

“I wonder whether we could see the advent of a new type of claim, for ‘KiwiSaver discrimination’?

Australia – trillions of dollars in the lead

“It’s clear that Kiwisaver is designed as a rather large shove from behind to ensure we are very focussed on achieving the Governments agenda of greater productivity,” says Doolan.

“At the Ernst & Young seminar, Cullen also reminded the audience of the advantages Australian companies have from the trillion dollar-deep pool of savings generated by Australia’s compulsory scheme. And that every time an Australian private equity firm crosses the Tasman and invests here, they are doing so with money saved by Australians who have been encouraged to save through active government policies for nearly twenty years.

“If the funds invested from KiwiSaver provide a capital base that ultimately helps control our extortionate interest and exchange rates, any negativeness about compulsory contributions to KiwiSaver will be overcome.”

Questions And Answers – Thursday, 14 June 2007

Press Release: Office of the Clerk

Hon Bill English: Has the Minister seen the estimates by his own department, Treasury, that show that the increment to household savings arising from KiwiSaver will be less than the fiscal cost to the Government of the incentives it will apply to KiwiSaver, and can he explain why the taxpayer would be spending more on incentives than the country gets in savings?

Hon Dr Michael Cullen: Treasury provided a variety of estimates over a period of time. I think that the reaction to KiwiSaver once the announcements were actually made indicates we will see a significant rate of take-up and far less of the behaviour that Treasury was forecasting.

Hon Dr Nick Smith: So Treasury got it wrong.

Hon Dr Michael Cullen: Yes.

Employers advised to take KiwiSaver pay reviews in two stepsMany employers in the middle of wage and salary reviews are finding they have to urgently re-work pay increases to accommodate the new compulsory KiwiSaver employer contributions, says David Lowe, Employment Services Manager for the Northern Employers and Manufacturers Association.

“Many businesses work on a July 1st financial year and review pay tied to that date,” Lowe said.

“With pay reviews for the period through to June 2008 well underway, many employers have had to re-work them after the Budget.

“Employers are advised to offer dual wage reviews to all employees, one to deal with employees choosing to contribute to KiwiSaver which will require employer contributions from April 1st, 2008, and the second review to deal with employees not contributing.

“The introduction of compulsory employer contributions requires everyone to alter how they view their pay to recognize that some of the money paid to them won’t be available until they are aged 65.

“This is a significant change; employers are annoyed it was thrust on them without notice and without adequate lead time.

“Some employers had already made commitments to staff to pay wage increases beyond April 2008 to find they had to add on the costs of compulsory employer contributions, on top of the extra week’s holiday brought in earlier this year.

“Employers jumping in to pay employer contributions boots and all by offering to contribute at 4% from the start of KiwiSaver are the exception.

“Dealing with the added cost and compliance announced in the Budget is proving difficult enough for most employers.”

Press releasePreparations for the 1 July introduction of KiwiSaver advanced today with the signing of an Order in Council that bring into effect both the annual fee subsidy to be paid to members and the rules governing the use of KiwiSaver to help repay the mortgage on the family home.

“We welcome these legislative changes, the last that are required for KiwiSaver, the landmark workplace saving scheme, to go live in July,” Finance Minister Michael Cullen and Revenue Minister Peter Dunne said today.

“Under the new regulations, the government will pay $40 a year into members’ accounts to subsidise the fees charged by scheme providers.

“The mortgage diversion facility will allow members to divert up to half their contributions to repaying the mortgage on their home, so long as the mortgagee and the scheme provider agree.

“The fee subsidy and the mortgage diversion facility are two of the many incentives designed to make it easier, more attractive and more rewarding for people to save through KiwiSaver. The scheme will help people save more quickly for their first home and enjoy a higher standard of living in retirement.

“The major enhancements to KiwiSaver announced in Budget 2007 – tax credits for contributions and the compulsory employer contribution – will encourage more people to join the scheme and continue to make regular contributions.

“People can be confident KiwiSaver will make a real difference to their long term financial security. KiwiSaver will build the wealth of New Zealanders and provide more kiwi capital to help grow kiwi businesses. It will be good for families and our future prosperity,” said Ministers.