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Mixed reaction to KiwiSaver changes

The financial services industry has welcomed yesterday’s changes to boost KiwiSaver enrolment, however employers and accountants are a bit more wary.

Friday, August 25th 2006, 8:13AM

by Rob Hosking

The government announced that implementation will be delayed three months to allow providers more time to be ready for both KiwiSaver and the accompanying tax changes. It also announced employers will be exempt from the specified superannuation withholding tax (SSCWT), as a way of encouraging employers to contribute to employees’ savings.

The move on SSCWT is a way to deal with an issue highlighted by union groups and a number of existing schemes during the select committee hearings on KiwiSaver: the fixed contribution levels of 4% and 8% of gross pay were seen as too high for some people.

Employer contributions will be included as part of the 4% (but not any higher than that).

Taken together, these are “welcome improvements,” says Investment Savings & Insurance Association Vance Arkinstall.

He singles out the SSCWT exemption as particularly encouraging.

Business New Zealand is more dubious, saying that although the changes are “generally positive” it is concerned that undue pressure is being put on employers to contribute. The group has earlier said it does not oppose KiwiSaver but believes employers should be left to make their own decisions.

“Any changes that encourage arm-twisting over co-contributions would not be a healthy addition to the KiwiSaver scheme,” chief executive Phil O’Reilly says.

Finance Minister Michael Cullen says however that “this is not pressure,” and he had been disappointed by Business New Zealand’s reaction earlier.

“This is a matter for negotiating between employers and employees.”

The Institute of Chartered Accountants’ tax director Craig Macalister described the tax change as “a bit dubious, from a tax policy point of view”. Although this incentive is relatively minor, it does appear a move in a direction towards providing tax incentives for activity the government likes, he says.

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

« Government moves to make KiwiSaver more palatableSOS sent to Cullen »

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