KiwiSaver subject to continuous tinkering

Thursday 12th May 2011 1 Comment

The Government's signal of changes to KiwiSaver in the Budget next week was yet another round of amendments to a scheme subject to almost continuous tinkering during its relatively short life, Chapman Tripp said.

"However, the deferral of the latest changes until 2012 might just make it possible for schemes to be re-documented in one hit next year, when providers adopt a range of other pending governance, reporting and disclosure changes," the law firm said.

Prime Minister John Key said today that the Government will change the mix of contributions to KiwiSaver accounts, with less coming from the member tax credit and more coming from both individuals and employers. The $1000 kick-start for new KiwiSaver members will remain as it is now.

He is also signalling changes to Working for Families and student loans ahead of the Budget, saying the changes will ensure the survival of the schemes.

"Post-recession, it is clear that the high costs of KiwiSaver, Working for Families and interest-free student loans are unaffordable in the longer term," Key said.

Currently over $1 billion a year of what goes into people's KiwiSaver accounts comes from the Government, through subsidies and tax breaks.

Over time, the Government has put in nearly half the money that has built up in KiwiSaver accounts.

Chapman Tripp said the member tax credit was worth up to $20 a week to KiwiSavers.

The Government did not provide details of changes to the credit.

"Member tax credit contributions are likely to be either reduced across the board, or targeted to low and middle income earners, it is unclear which," Chapman Tripp said.

"We deduce this from Mr Key's comment that the Government will change the mix of contributions to KiwiSaver, with less coming from the member tax credit and more from individuals and employers."

Chapman Tripp said the Government was fudging when it signalled that the member tax credits had no real utility because they "make no difference to national savings".

The argument ignored the fact that people could access these incentives only if they saved.

A reference to increased contributions from businesses and individuals may be a signal that default employee and maximum employer contribution rates will revert over time from 2% to perhaps 4% each, as was originally intended.

NZPA

Comments from our readers

On 13 May 2011 at 1:16 pm Mike said:

Politicians can not stop themselves tinkering with with good ideas set up by the opposition until it either becomes theirs, or, in Nationals case, they have eliminated it or privatised it. The working for families, student loan and KiwiSaver would not need any change if National had not handed out unwarranted tax cuts to the wealthiest in our community. At the same time they increase GST by 25% which effects the poorest people in the community out of all proportion to the wealthy. This has resulted in a direct transfer of wealth from the poor to the rich! National have zero ideas about creating employment and steering the country to a higher living standard for the improvement of all society! A national roadway hardly qualifies. They are all about cut, cut, cut at the behest of their masters: The Business Round Table!