Budget 2005: First step, but detail to come

The announcements in relation to savings can be separated into two basic themes:

1. Options for improving the availability of saving products
2. Options for removing the disincentives to saving.

In recent years the employer subsidised superannuation scheme has become an endangered species. Employers, particularly in the private sector, have rebelled against the increasing costs of promoting these schemes and have instead sought to cash benefits up to permit employees to undertake their own savings arrangements.

Cullen has sought to stem this tide with the announcement of the government sponsored superannuation scheme to be known as KiwiSaver. This scheme will apply to all employees unless they choose to opt out. The government plans to provide a list of approved investment providers where the fees charged by the approved providers will be subsidised by central government. Each employee will have the choice of which provider their individual funds will go to, and where no election is made a default manager will be used.

The second theme noted is the disincentives to saving. These can generally be confined to the disincentives to using a collective investment vehicle (CIV) rather than saving per se.