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Some pain needed to get savings going

Employer subsidies for a savings scheme - a kind of KiwiSaver on steroids – has been advocated by the New Zealand Institute in its latest report, Developing Kiwi Global Champions.

Tuesday, August 8th 2006, 10:15PM

by Rob Hosking

Although the focus of the report is economic growth, it places a strong emphasis on boosting savings to achieve this.

Institute executive director David Skilling says KiwiSaver is a step in the right direction, but does not go far enough.

He also says people are able to save more. Numerous submissions to Parliament on the KiwiSaver Bill stated the current – relatively modest – contribution thresholds of 4% and 8% of gross income are too high for many people. Not only unions, but also some scheme administrators made that point.

Although the report suggests boosting savings by employer rather the employee contributions – paid for, at least in part, by a tax cut for employers – Skilling says the absence of accessible savings vehicles is more of an issue.

“At an individual level, everyone knows someone who earns $150,000 and doesn’t save a cent, and someone who earns $45,000 and somehow manages to put something away.

“And over the last decade or so New Zealand’s economic performance has seen considerable rises in income, but savings have actually declined over that time.

“So I don’t think the sole answer is to grow income. A portion of that income needs to be captured into a savings vehicle, and that’s what New Zealand lacks.”

Employer groups such as Business New Zealand have been sceptical about KiwiSaver – and opposed to any moves to force or even incentivise employer contributions – but Skilling says there is a mood shift under way.

“There is now a reasonably broad sense that savings is an issue on which they would like progress to be made. The question now is how you do that.

“And it’s impossible to get a savings policy off the ground without some pain.”

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

« Govt admits it's seriously looked at compulsory super‘Let’s Talk KiwiSaver’ – Inland Revenue August forum »

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