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KiwiSaver Bill - First Reading Speech

The first reading of the KiwiSaver Bill by the Hon Dr Michael Cullen

Tuesday, March 7th 2006, 9:58AM
I move, that the KiwiSaver Bill be now read a first time.

I intend that the Bill be referred to the Finance and Expenditure committee for consideration.

The KiwiSaver Bill represents a landmark in social and economic legislation. Saving and investing is the foundation of the future wealth of New Zealanders as individuals and as a country. This Bill adds an important new element into the savings landscape. It creates a vehicle for encouraging all working New Zealanders to set aside a portion of their earnings to fund their long term income security.

KiwiSaver completes a set of measures the Labour-led government has introduced to create a secure environment for planning retirement income. First, when we were elected in 1999 we took immediate steps to restore the level of New Zealand Superannuation and ensure that its value relative to the average wage would be preserved

Second, we moved to create the New Zealand Superannuation Fund, which provides long-term stability to the basic state pension by partially pre-funding the scheme so that future governments will be better placed to negotiate the cost pressures brought about by demographic change.

Third, we recognised the need for government to show leadership in providing workplace savings options by introducing the State Sector Retirement Savings Scheme, a voluntary savings scheme aimed specifically at state sector employees.

Now KiwiSaver completes that picture, by providing easy access for all employees to a long term savings scheme.

Like most western nations, New Zealand has struggled to achieve high rates of participation in long term retirement savings schemes. While New Zealand Superannuation provides a base level of income in retirement, it has always been clear that most New Zealanders will have to top this up with their own savings in order to avoid a significant drop in income during retirement. The current savings environment provides little encouragement for New Zealanders to address this issue early in their working lives, with the result that many do not develop a regular savings habit and delay any serious attempt to save until relatively late in their lives.

KiwiSaver addresses that problem, not through compulsion or through distortionary tax breaks, but through a relatively simple mechanism of automatic enrolment. KiwiSaver focuses on encouraging saving in the workplace. This allows for deductions at source, provides benefits from economies of scale, and reaches a high proportion of the population who are able to save.

There are six key features of KiwiSaver:

First, it tilts the playing field towards establishing a long-term savings habit.

KiwiSaver achieves this through automatic enrolment when an employee starts a new job, for those aged 18-65. Others (below age 65) may join KiwiSaver at any time. This includes those already in a job, the self-employed, and those not employed in the workforce. Contributions deducted from pay by the employer at a rate of 4%, or 8% if the employee elects the higher rate. Those not employed will be able to elect their own contribution rate (in agreement with their scheme).

As an additional incentive for enrolment, the government will provide a start-up contribution of $1000 per member, and will contribute towards a member's fees.

Second, it locks in savings for use in retirement.

Savings are primarily for retirement and members will not be able to access their funds until age 65 or after five years membership of KiwiSaver, whichever is later, with the following exceptions: purchase of a first home, serious financial hardship, or permanent emigration.

Members can stop contributions for up to five years at a time via taking a contribution holiday, with contributions resuming unless a further option to suspend is exercised. Contribution holidays will be available after 12 months membership in KiwiSaver.

Third, it provides members with a choice regarding how their savings will be managed.

Members can choose from a range of funds managers whose products qualify under the KiwiSaver scheme. There is, however, a default option for those who do not choose, and members can change between schemes, at any time.

Fourth, KiwiSaver minimizes compliance costs for employees, employers and providers.

Employers will deduct contributions from employees' pay and forward them to Inland Revenue along with PAYE. Employers will be able to make contributions on behalf of their KiwiSaver employees via Inland Revenue or direct to a scheme. The actual rate of employer contribution will be a matter of negotiation between employer and employee.

Employers with be able to choose a preferred KiwiSaver scheme for their employees if they wish. Employers with a suitable work-based registered superannuation scheme will be able to apply to the Government Actuary for an exemption from the automatic enrolment provisions.

The Government contribution to fees will be a flat dollar amount per member per annum, paid to each member's account.

Fifth, it provides for prudential oversight of schemes and allows existing fund managers to join.

While KiwiSaver schemes and products will not be guaranteed by the government, KiwiSaver schemes will be governed by trust deeds and regulated similarly to registered superannuation schemes.

A limited number of providers of default schemes will be selected via a competitive tender process. Calls for expressions of interest will occur shortly.

Other providers will be able to offer KiwiSaver schemes if they meet a minimum set of criteria, including the requirement that fees are not unreasonable.

Existing registered superannuation schemes will be able to continue operating independently of KiwiSaver, convert to a KiwiSaver scheme or establish a KiwiSaver scheme with their existing scheme under their existing trust deed.

Sixth, it includes a mechanism for encouraging home ownership as an important element in long term financial security.

KiwiSaver will be linked to a new scheme to assist modest to middle-income families with a deposit for a first home. Those who are KiwiSavers for a minimum of three years will qualify for a deposit subsidy of $1000 a year up to a maximum of five years at the time of purchase of their first home. They will be able to draw down all of their accumulated savings as KiwiSavers except for the initial $1000 start-up contribution. There will be conditions in relation to the total household income of the applicants and the value of the house being purchased. The exact criteria are yet to be determined.

The home ownership deposit subsidy will also be available to members of registered superannuation schemes if their employer is exempt from the automatic enrolment provisions.

Changes since Budget 2005

Since the Budget 2005 announcement, the government has engaged in extensive consultation with providers, employers and consumer groups to ensure that the KiwiSaver scheme is robust and workable. This has led to some changes to KiwiSaver. These include:

  • Clarifying how information about the allocated default scheme will be sent to new employees;
  • Extending the opt-out period for new employees from 3 weeks to 6 weeks, to enable employees to seek financial advice;
  • Extending the minimum period before a contribution holiday can be taken from three months to twelve months.
  • Providing existing registered superannuation schemes with an option to establish a registered KiwiSaver scheme within their existing registered superannuation scheme, under the existing trust deed.


The government intends to have the KiwiSaver scheme up and running by 1 April 2007. This would require the KiwiSaver Bill to attain Royal Assent by early October to ensure that providers of default schemes have around 6 months from appointment to be ready for the scheme to commence. This means the tender to select providers of default schemes will occur in parallel to the Select Committee process, and these providers will be appointed after the legislation attains Royal Assent.

« KiwiSaver may force some managers out of businessKiwiSaver – a New Zealand landmark »

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Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA 5.95 4.85 5.35 5.65
ANZ 5.94 ▲5.95 ▲6.40 ▲6.59
ANZ Blueprint to Build - - - -
ANZ Special - ▲5.35 ▲5.80 ▲5.99
ASB Bank 5.85 ▲5.35 ▲5.80 ▲5.99
Avanti Finance 5.95 - - -
Basecorp Finance 6.95 - - -
Bluestone 5.89 7.49 8.09 8.19
BNZ - Classic - ▲5.35 ▲5.69 ▲5.99
BNZ - Mortgage One 5.94 - - -
BNZ - Rapid Repay 5.94 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Std, FlyBuys 5.94 ▲5.95 ▲6.29 ▲6.59
BNZ - TotalMoney 5.94 - - -
CFML Loans 6.45 - - -
China Construction Bank 5.50 5.40 6.14 6.40
China Construction Bank Special - 4.45 5.19 5.45
Co-operative Bank - First Home Special - ▲4.75 - -
Co-operative Bank - Owner Occ 5.85 ▲4.85 ▲5.35 ▲5.65
Co-operative Bank - Standard 5.85 ▲5.35 ▲5.85 ▲6.15
Credit Union Auckland 5.95 - - -
First Credit Union Special 5.85 4.95 5.45 -
Heartland Bank - Online 4.10 ▲4.40 ▲4.90 ▲5.10
Lender Flt 1yr 2yr 3yr
Heretaunga Building Society 6.10 5.00 5.75 -
HSBC Premier 5.89 4.39 5.15 5.39
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 5.25 4.39 5.09 5.45
Kainga Ora 5.43 4.57 5.58 5.85
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 5.50 5.85 6.19 6.39
Kiwibank - Offset 5.50 - - -
Kiwibank Special 5.00 4.85 5.19 5.39
Liberty 4.84 - - -
Lender Flt 1yr 2yr 3yr
Nelson Building Society 6.45 ▲5.55 ▲6.15 -
Pepper Money 4.49 - - -
Resimac 6.19 5.60 6.16 6.29
SBS Bank 5.79 5.05 5.69 5.89
SBS Bank Special - 4.55 5.19 5.39
Select Home Loans 4.09 4.29 4.86 5.09
TSB Bank 5.59 5.14 5.79 6.15
TSB Special 4.79 4.34 4.99 5.35
Unity 5.65 4.95 5.55 -
Wairarapa Building Society 5.74 4.95 5.75 -
Westpac 5.94 ▲5.95 ▲6.29 ▲6.59
Lender Flt 1yr 2yr 3yr
Westpac - Offset 5.94 - - -
Westpac Special - ▲5.35 ▲5.69 ▲5.99
Median 5.85 5.00 5.69 5.99

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