by Rob Hosking
The moves to boost the government’s flagship KiwiSaver workplace savings scheme went much further than most were expecting.On top of the widely anticipated tax break for contributions, there was the compulsory employer matching contribution, to be phased in over four years, and a $40 annual fee subsidy.
And then there is the 30% top rate for earnings in Portfolio Investment Entities (PIEs). “This is like getting people into retail investment schemes at better than wholesale prices,” says Tower’s chief executive of investments Tony Hildyard.
“The $40 fee subsidy is massive when you are starting out. The movement in compulsory employer contributions - – we were expecting that, and it probably makes default provider status even more important.
“It means the government is serious about this, and in four years time there will be virtually compulsory savings.”
AXA New Zealand chief executive Ralph Stewart says that overall the Budget had demonstrated “a commendable enthusiasm for trying to improve New Zealand’s savings rate.”
Investment Savings and Insurance Association chief executive Vance Arkinstall described the Budget as “a bold step with the package of initiatives announced just at the time when boldness was required”.
“There is now no doubt that the proposition offered by KiwiSaver is so attractive that virtually all New Zealanders must consider joining. Even employees not changing jobs should consider opting-in.”
The Association of Superannuation Funds – which, as the representative of existing workplace schemes had been dreading the Budget would provide more incentives for people to switch out of those schemes – is also pleased.
“Cullen’s budget extends equivalent treatment to existing workplace retirement savings schemes that are willing to move to KiwiSaver compliant status, or where existing employer contributions will otherwise satisfy the employer compulsory contribution obligation,” says ASFONZ chairman John Melville.
The changes, which allow existing schemes to adapt to KiwiSaver rules, “is a very proactive incentive to lift participation in workplace retirement savings”, he says.
Also welcomed by several groups was the announcement of extra enforcement of tax rules around property investment, which is being done to further tilt New Zealanders away from their enthusiasm for real estate and towards a more balanced portfolio.
"It's a step in the right direction, although ultimately it is unlikely to re-balance the savings landscape,” says NZX chief executive Mark Weldon.
And the $20 a week tax boost for savings “ sends a strong signal to New Zealanders that they can regain personal control of their future financial security - a concept that's seemed out of the grasp of so many people until now," Weldon says.
Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.
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