An interesting blog by Phil over at good returns.
The government has made it clear KiwiSaver is happening on April 1, come hell or high water. They have even gone so far as to tell the select committee few changes can be made at that level, because the timetable is so tight.
My view is that KiwiSaver is a key plank in the government’s next re-election campaign. KiwiSaver just won’t be put back. It is politically naive to suggest this is an option.
Kiwi saver is an interesting one, because everyone acknowledges that something has to be done about the looming superannuation problem as our population ages. Most New Zealanders will remember Winston Peters complusary savings referendum being soundly defeated in the 90′s. But since then no one has come up with any better solutions. The Labour government in sticking with their philosophical bent and redistributionist policies believes they can solve the problem – With Kiwisaver. See below for a description of Kiwisaver.
So having now gone full circle this is a semi-complusary work based saving scheme. I say semi-complusary because you have to opt out of it, rather than opting into it.
I am also concerned that the government will allow savers to use this account to withdraw finds as a deposit on a house. Internationally this may make sense, however encouraging the property market any further is pure folly. I’ll post on this at another time, but enough to say that the government fills its coffers from property money. In GST alone it is estimated that construction companies pay over $1 billion in GST to the government. I’ll have to find the source for that figure, but enough to say that the property market here is massive.
So the question is, if not Kiwisaver then what?
The IRD website gives the following description of KiwiSaver:
KiwiSaver is a voluntary, work-based savings scheme, due to start in April 2007, to help New Zealanders save. In general, Inland Revenue will administer the scheme using the existing PAYE (pay as you earn) tax system.
How the scheme will work
Employees will be automatically enrolled into KiwiSaver when they start a new job. They will have three weeks to “opt-out” and must advise Inland Revenue of their decision. Scheme enrolment is not automatic for workers under 18, or for existing employees. They will be able to join if they wish. Self employed people and beneficiaries will also be able to join but need to make payments directly to Inland Revenue.
Employees’ contributions will:
- start from the next pay day after eight weeks with an employer
- be deducted from wages at a rate of 4 percent of gross salary, unless the individual opts for the higher rate of 8 per cent, and
- be held by Inland Revenue for an initial eight-week period during which the employee can seek financial advice and select a fund provider (an organisation offering a registered saving scheme that meets the criteria for KiwiSaver).
Savers will be able to select their own fund and can change fund providers, but can only have one provider at any time. Those who do not specify a fund will be randomly allocated to a default provider.
Savings are primarily for retirement and “locked in” (ie will not be accessible) until the age of eligibility for NZ Superannuation, currently 65, except in cases of:
- financial hardship
- permanent emigration, or
- after a minimum of three years, to contribute toward a deposit on a first home.
However savers can stop contributions for up to five years at a time by applying for a “contributions holiday”. Contributions resume at the end of the five years unless the individual applies for a further “contribution holiday”.
Government contribution
The Government will:
- make an upfront contribution of $1000 per person, to be “locked in” until the recipient reaches the age of eligibility for NZ Superannuation or for five years, whichever is the greater
- provide a fee subsidy
- after three years of saving, offer a first home deposit subsidy of $1000 per year of membership in the scheme, up to a maximum of $5000 for five years.
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