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Govt announces detail of workplace savings scheme

By Rob Hosking

Thursday 19th May 2005

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Finance Minister Michael Cullen has unveiled a workplace savings package in the Budget based on last year’s Peter Harris-led Workplace Savings Group report.

Under the “KiwiSaver” programme, employers will have to provide access to superannuation schemes for their employees, and employees will automatically be enrolled when they join a new employer.The employee still has the option of pulling out after eight weeks, but the Budget provides for a $1000 incentive for them to stay in the scheme.

While joining is voluntary, savings are locked in until retirement age.

In a move that will allay the fears of existing workplace schemes, the government will allow those schemes to convert to a KiwiSaver product and be eligible for the subsidy.

Contributions will be set at 4% income, but the employee can opt for 8% if they wish.

The government will also meet the costs of administering KiwiSaver through the Inland Revenue Department.

A further incentive is that the government will subsidise the fees for approved KiwiSaver schemes.

No details are available on this yet, as “this level has yet to be finalised and will depend on consultation and negotiation with providers,” Cullen says.

People will also be able to take a contributions holiday of up to five years, if they wish to concentrate on reducing their mortgage.

The KiwiSaver scheme will be open to the self-employed. Details of the providers are still very sketchy. There will be two types of KiwiSaver providers: default providers and other qualifying providers.

Default providers are for those employees who do not select a provider, and will be selecting by a competitive tender process designed in part to negotiate lower fees.

The qualifying providers will need to meet a set of minimum criteria – again, these have yet to be determined.

The KiwiSaver package is accompanied by a large financial literacy campaign - $90 million in the 2006/07 year, but jumping to $280 million in 2007/08.

To put this in perspective, the Retirement Commission’s entire budget last year was just over $3.7 million.

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