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Government moves to make KiwiSaver more palatable

A tax break for employers and the ability to divert KiwiSaver funds to mortgage repayments have been announced by the government.

Thursday, August 24th 2006, 11:53AM

by Rob Hosking

Alongside those changes is also the news the implementation of the scheme, along with the associated tax changes, is being delayed by three months from April to July next year.

Employer contributions to KiwiSaver will be exempt from the specified superannuation withholding tax, currently paid by all employers on any contributions they make to superannuation schemes.

The exemption will not apply to contributions to non-KiwiSaver workplace savings schemes. Finance Minister Michael Cullen says those schemes have other advantages.

"I am also hopeful employers will now see KiwiSaver as a valuable way of contributing to the long term financial well being of their workers. By making employer contributions tax free, we are making it even more attractive for workers to save, as their balances will grow much quicker with an employer subsidy.

Earlier today Revenue Minister Peter Dunne announced a delay in implementation of the tax changes. The select committee report on KiwiSaver recommended delaying the implementation after representations from the funds management industry that firms are unlikely to be able to implement both the systems for KiwiSaver and the investment tax changes in time for the April deadline.

Union groups and several existing schemes told MPs that the two KiwiSaver contribution rate options – 4% or 8% of gross salary – are too high, and that rates of 2% and 4% would be more suitable for the low paid – have not been directly taken on board.

However the move to encourage employer contribution appears to be a different way of attacking the same issue, because the employer contribution will count towards the 4% (but not, in a move to favour the more low paid, the 8%).

"We are giving employers more choices when it comes to remunerating their workers. By allowing an employer contribution to count towards the minimum contribution we are also making it easier for workers, who may struggle to contribute 4%, to join KiwiSaver.” Cullen says.

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

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