KiwiSaver

Finance Minister Michael Cullen said Opposition leader John Key has deliberately exaggerated the net cost to employers of KiwiSaver.”In Parliament today he did a back-of-the-envelope calculation offsetting the benefit of the business tax package that is simply incorrect,” said Cullen.

“He has ignored the employer tax credit and used the wrong basis for his claims – 2 million workers, when there are 1.346 million equivalent full time workers. He has also failed to take into account the fact that employers will be able to offset their compulsory contributions against wage/salary negotiations.

“The net annual cost of the employer contribution after full implementation is $1.346 billion (cost of the employer contribution) minus $674 million (the credit offsetting the employer contribution) which equals $672 million.

“If there is a 0.5% moderation in total wage growth over the next four years in total, it would reduce the net cost to just over $300 million.

“What he has done is he has exaggerated the cost of KiwiSaver and ignored the change in incentives towards saving and investing that will bring wider advantages to the New Zealand economy as outlined by NZX.

“NZX CEO Mark Weldon said ‘the matching tax credits for employer contributions will give businesses a competitive edge in attracting and retaining high value employees.

‘There’s no doubt we’re swimming in a global talent pool. Now employers will be able to contribute to their employees’ savings in a low-cost, tax-efficient way, adding a degree of flexibility to structuring pay packages that will help them attract and keep the best people.'”

“What Key did in the House today was ripping up his speech as he went along because that is exactly what it was, rubbish.”

The Retirement Commissioner says the Government’s planned additions to
the KiwiSaver scheme now make joining more worthwhile.The Commissioner, Diana Crossan, says Budget announcements of compulsory
employer contributions and tax credits of $20 a week mean people need to
spend time working out the status of their personal finances before they
make decisions about joining KiwiSaver.

“Budget announcements may make KiwiSaver more attractive,” says Crossan. “Experts will say it is an easier decision, but people will
need to make well informed decisions themselves, based on their
particular financial situation.

Crossan says people will definitely need to use the Retirement
Commission’s new online financial check up – Sort Me. Sort Me helps
people work out how financially sorted they are. It’s the first step to
understanding whether KiwiSaver’s right for them.

Crossan said workplace savings schemes were proven to be the easier
way of saving, and to attract people, the schemes needed to be as simple
as possible.

“Many people have a large mental hurdle which can stop them signing up
to long term savings. The kick start cash incentive and automatic opt in
to KiwiSaver may help people over that hurdle.

“The new announcements certainly make KiwiSaver more attractive, but
it’s important for people to have a good grasp of their financial
priorities.

“KiwiSaver gives all New Zealanders a trigger to think seriously about
their money situation. Whatever your age or stage putting off important
financial decisions is not the way to go – whether it be a decision to
pay off debt or to plan for retirement,” she says.

“One thing’s for sure, most people need to prepare financially for
retirement if they want more income than is provided by New Zealand
Superannuation – which currently after tax is approximately $14,407 if
you’re single and living alone or $22,164 if you’re a couple,” says
Crossan.

�The Investment Savings and Insurance Association (ISI) applauds the Budget announcements to encourage savings and investment�, said Vance Arkinstall, CEO, Investment Savings & Insurance Association.�The KiwiSaver announcements will ensure the success of KiwiSaver. There is now no doubt that the proposition offered by KiwiSaver is so attractive that virtually all New Zealanders must consider joining. Even employees not changing jobs should consider opting-in�, said Arkinstall.

�The combined effect of the $1000 kick-start, the Government fee subsidy of $40 per year and tax credits on the member contributions, form an attractive package. When coupled with the phased in compulsory matching of contributions by employers from 1 April 2008, then KiwiSaver becomes clearly the most compelling investment option available�, said Arkinstall.

�There is no doubt the balance between the strong encouragement to employees to participate and the compulsory employer contribution matching, will ensure KiwiSaver success�, Arkinstall said.

�Government has taken a bold step with the package of initiatives announced just at the time when boldness was required�.

�The Budget also announced that the tax rate on Portfolio Investment Entities (PIEs) would reduce from 33c to 30c from 1 April 2008. This further improves the returns for investors in managed funds. Taxpayers at the 33% and higher 39% levels will have an increased advantage saving through managed funds�,Arkinstall commented.