Nest-egg laying KiwiSaver to have its wings clipped

Changes to KiwiSaver to be announced by Prime Minister John Key today in a pre-Budget speech will have a negative affect on savings, according to financial adviser Simon Hassan.

Wednesday, May 11th 2011, 6:49AM

by Benn Bathgate

Both Key and Finance Minister Bill English have said changes are to be announced for the scheme as the Government attempts to rein in the budget deficit, with media speculation suggesting the Government may cut the member tax credit or abolish the $1,000 kickstart payment.

For Hassan, whatever form the changes take, they will invariably damage the scheme's effectiveness as a long term savings vehicle.

"You can't take away a subsidy and have people behave the same way, so no matter what they do to change the subsidy it'll have some negative effect on savings. It's a question of how significant it is or how widespread."

He said changes to incentives would also disproportionately effect younger savers - the people the Government wants to encourage to save more - as older savers and those already enrolled have received the benefits of subsidies like the kickstart.

"If they suddenly raise the awareness amongst those people and say hey, we're not going to give you as much of a benefit for staying in the very long term savings plan as we were, there'll certainly be some who will think it's time to pull out, and others who will think it's not worth it."

Rohan Financial Services Dave Rohan also believes changes will be made to the scheme, though he believes the kickstart will stay in place.

"It seems to me that the tax credit is likely to either go or be cut because that's the most expensive part for the Government."

He also agreed that changes would lessen KiwiSaver's appeal as a long-term savings vehicle, especially among younger people.

"I think it's likely to make KiwiSaver less attractive for new participants."

Rohan said the Government may try and compensate for any subsidy reductions by trying to make employers increase contributions, though he said with a lot of employers struggling, "they wouldn't be too keen on that."

Benn Bathgate is a business reporter for ASSET and Good Returns, email story ideas to benn@goodreturns.co.nz

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