By Amanda Morrall
KiwiSaver providers say there were few surprises in National's announcement on Wednesday signaling cuts to member tax credits as part of an overall effort to sheer NZ$5 billion a year off expenditure on the scheme as well as Working for Families and student loans, but want an end to further tinkering to KiwiSaver.
Continued changes to the nascent national saving programme will not only undermine investor's confidence, but will have a destabilising effect on the savings industry, warned boutique provider Carmel Fisher.
"On top of the changes that were made a few years ago, it's not a good way to run a savings industry,'' said Fisher, in response to Government's pre-Budget notice on KiwiSaver changes.
Prime Minister John Key announced that member tax credits, currently NZ$1,043 a year, will be cut, but wouldn't specify the amount to be cut until the May 19 Budget. Meanwhile, the changes would not take place until after the November 26 election, so as not to breach a National 2008 election promise to retain the incentive in its present form.
Key further indicated that employer and employee contributions would be increased, having the dual effect of saving Government money but also increasing national savings, if only "marginally.''
The NZ$1,000 kick-starts will not be sacrificed.
Default provider Tower Investments said the move was largely in line with expectations and realistically necessary to reduce Government's foreign borrowing as a means of financing the programme.
Tower Investments' chief executive Sam Stubbs said the minor adjustments showed fiscal responsibility while sending a message that KiwiSaver was here to stay.
"It's a relatively strong signal that they want the pool of members (now more than 1.7 million) to continue growing and their savings to continue to grow over time," Stubbs said.
Since the savings scheme was introduced in 2007, funds under management have grown to more than NZ$8 billion.
Government projects that the KiwiSaver kitty will swell to NZ$25 billion by 2015 and NZ$60 billion in 10 years.
"That ultimately has to be a good thing long-term for New Zealand," said Stubbs.
'Not bad to pay more'
While KiwiSavers themselves will have to sacrifice more from their pay to self-fund their retirement, Fisher suggested that was not a bad thing.
"It's important for us to take greater control of, and responsibility for, our personal savings, we know the country can't afford to continue subsiding that forever," she said.
Fisher did not believe that reduced member tax credits would in itself be a disincentive to join the scheme.
"Even if you got NZ$500 a year, instead of NZ$1,043, it's still NZ$500 you wouldn't otherwise have got. It's still meaningful for people on certain income levels," she said.
That sentiment was upheld by default provider ANZ Wealth, which said member tax credits were the most "sensible area for Government to review its liabilities".
John Body, managing director of ANZ Wealth, said the National government's signaled changes were in line with the provider's recommendations on KiwiSaver in its submission to the Savings Working Group.
"We have always favoured raising minimum contributions in small, incremental steps to bring us into line with other OECD country saving schemes," he said.
Body said certainty and sustainability were key priorities for KiwiSaver.
"Any changes that are designed to make the scheme more sustainable for the long term are welcome. What is most important is that we hear, certainty from policy makers, that KiwiSaver is here to stay, so New Zealanders can have confidence in their decision to join and save for their retirement," Body said.
"People just have to be given an opportunity to plan for the future and the reality is that the vast majority of New Zealanders are going to have to start saving more than they are now to save for their future," Stubbs said.
Prime Minister Key did not specify when the member contribution mix would change, but noted it wouldn't happen immediately.
“Increased contributions from people and businesses will happen at a time when the economy will have well and truly recovered, and both wages and employment will be increasing,” he said.
Body said certainty and sustainability were key priorities for KiwiSaver now and going forward.
"Any changes that are designed to make the scheme more sustainable for the long term are welcome. What is most important is that we hear certainty from policy makers that KiwiSaver is here to stay, so New Zealanders can have confidence in their decision to join and save for their retirement."
10 Comments
As a big fan of Kiwisaver I was concerned as to today’s announcement. I don’t think this is as bad as it could have been. The issue I have it that govt policy is yet again applying more pressure on the lower income earners. In saying this, shifting the responsibility, and incentive, to save into the private sector makes good sense in the long term. If the Nats can form govt in November it will also be interesting to see how this changes the landscape. Salaries in Australia are looked on a “before super contribution” basis. Will Kiwisavers start thinking this way? Shifting the responsibility and incentive to the private sector in my view also moves us towards compulsion, probably unintentionally. While we had MTC’s compulsion was never going to happen.
"The issue I have it that govt policy is yet again applying more pressure on the lower income earners"
- Its been that way since at least the time of Babylon if not before...
"In saying this, shifting the responsibility, and incentive, to save into the private sector makes good sense in the long term"
- Perhaps but I wouldnt trust any of the current crop of politicians, corporates, bankers and financial conmen to tell me the time in a room full of clocks...
If the Nats can form govt in November it will also be interesting to see how this changes the landscape
- Be honest with your self nothing has changed in 20 years its not meant too things are proceeding according to the AGENDA, your not part of it niether am I...perhaps you have 30,000,000 +? that may tweak the attention of the ruling elite or some glossy magazine...
Salaries in Australia are looked on a “before super contribution” basis. Will Kiwisavers start thinking this way?
- If your stuck in Kiwi saver I would be concerned about what kind of purchasing power a pathetic 100,000 may have in 20 years at the current rate of debasement you might get a loaf of bread and pay a power bill, Aussie eh I dont know, not living there, it's all hearsay untill ya live there...
Shifting the responsibility and incentive to the private sector in my view also moves us towards compulsion, probably unintentionally. While we had MTC’s compulsion was never going to happen.
- Who knows? But that's how the game works. Keep the sheep guessing. Shift the goal posts, spin some econobabble, with lashings of obfusication! Buy the time it happens some other fake engineered concern will be invented and plonked on your Consciousness to try and fathom out!
Have a happy day!
Struth Seph, you're not expecting the Sir Humphreys to take a haircut are you....now that would really rock the boat. Half a million dollars a year is really a pitiful salary to make ends meet on you know...and they do so much work...sitting on their bums...ordering other bums to order yet more bums to tell the lowest of the state sector low what has to be done...it's hard yacka Seph.
And anyway...even of they were to be paid 20% less...look how little it would save in total...about the cost of one new hospital or ten new school buildings each year...several hundred costly operations...naaaaaa it just aint worth it mate.
A far more likely thing to occur is for the Sir Humphreys to be getting a really BIG FAT BLOATED salary increase...oh shit they just got one....silly me...14% rise....average I know but you get the drift.
Then again, we have to keep the fools who are the ones who make the grand salary adjustment decisions for the Sir Humphreys, in full time fat pay positons don't we. Where would we be without them. Now Seph....you be a good little peasant Kiwi and post a donation off to Bill English with a note asking him to reward one of the Sir Humphreys with your tip......BMW will be so pleased.
Wolly Id rather be a peasent than a slave theres a ever so small difference!
LOL mmmm back to the "Good Life" perhaps?
Bill would have trouble reading where the donation came from since his army of staff and Bill himself couldnt understand his own accomadation allowance. To think Bill runs the finances of whats left of a country is quite frankely Frank Spencer!
lol...
The rationale is that if low-income earners in KiwiSaver want to keep their savings at current levels (that is where they are now before the axe is lowered in MTCs) they are going to have to increase their own contributions. Those struggling to make the 2% as is, would likely find it that much harder to chip in 4% to make up for reduced MTCs.
Amanda
I will acceot your rationale that a reduction in the Government contribution is harder on lower income than higher income people, because it equates to a higher proportion of their income, only if you will also accept that whatever remains of the member tax credit, and the $1000 kick-start, and New Zealand Super, are more generous to lower income people than they are to higher income people.
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