Insurance, KiwiSaver could help out-of-work NZers

New Zealanders could be covered by mandatory unemployment insurance, or required to set up portable redundancy savings accounts linked to KiwiSaver, to help boost income security, the Productivity Commission has suggested.

Wednesday, November 20th 2019, 8:43PM

It has released a draft report on employment, labour markets and income, which said that New Zealanders had few supports available to them if they were out of work.

It noted that few people had private insurance that would cover them for redundancy and it was expensive, or impossible to get, for people with a high risk of job loss.

"Some insurers offer redundancy cover, usually as part of an income or mortgage protection policy. However, payments are often subject to a waiting period of 30–90 days, and self-employed workers are generally not covered. Support is typically for a limited period at 60% to 80% of a person’s previous earnings."

The report said New Zealand and Australia were unusual for not having a widespread unemployment insurance scheme.

In New Zealand, such a scheme could be modelled on ACC and administered by the Government, the report suggested.

Another option was to set up portable individual redundancy accounts that people would contribute to in the same manner as KiwiSaver.

They could then withdraw their money if they lost their jobs and take the remaining balance at retirement.

“In New Zealand, balances in individual redundancy accounts could be transferred to a KiwiSaver account on retirement. The system could be more fully integrated with KiwiSaver. For example, a person’s individual redundancy account could sit alongside their KiwiSaver account, managed by their KiwiSaver fund.

“A system of portable individual redundancy accounts would require a higher level of savings (and hence higher employer or employee contributions). Such contributions increase the cost of labour.”

There would also be problems for young people who had not had time to build up a buffer in their accounts or people who had multiple job losses.

But the commission said it could see merit in pursuing both the ideas, as well as changing benefits and tax credits.

“However, comprehensive analysis and policy work is needed to fully understand the relative costs and benefits of these options, as all three options involve significant changes to policy, processes and institutions.

“Portable individual redundancy accounts would likely interact with the retirement savings system. Social insurance schemes can provide good opportunities and incentives for innovation but can be ‘challenging and slow to design and implement’. Moreover, expanding existing income supports or introducing new ones also involves difficult and complex trade-offs between providing adequate support, controlling costs to the Government, and avoiding perverse outcomes such as high effective marginal tax rates.”


Tags: KiwiSaver Productivity Commission

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