The Government's raising the default contribution rate for KiwiSaver from 3% of wages to 4%, while at the same time cutting its own contributions to the scheme in half.
People will also start making contributions at a younger age.
And the Government is looking at allowing KiwiSaver funds to be used by farmers to purchase their first farm or herd of animals, although these changes are not part of the latest Budget. This information came in comments about a major revamp of KiwiSaver which was announced at the budget by Finance Minister Nicola Willis.
She said the KiwiSaver reforms will improve the total savings level for people when they reach the age of 65, despite the cut in state contributions.
There has long been speculation that this budget would change the rules on KiwiSaver, due to worries about the limited amount of money available to help older people in future.
“Most New Zealanders have already embraced KiwiSaver as a simple way of accumulating savings to supplement their income and retirement,” Willis says.
“The budget’s KiwiSaver package is designed to encourage them to save more so they can look forward to greater levels of financial security.”
The new 4% rate is a default rate for both employers and employees. The current 3% rate will rise to 3.5% from April 1 next year and reach 4% on April 1 2028. However, there is an optional rate. Employees will be allowed to pay at 3% if they wish, and this would mean their employers’ contribution would be 3% as well.
People aged 16 and 17 will also be able to access this programme.
“To encourage first-time employees to adopt the savings habit, we’re extending the government contribution, and employer matching, to 16 and 17-year-olds in the workforce," Willis said.
The value of the state contributions will be halved from 50 cents to 25 cents for each dollar of contribution by a member from this July. This will reduce the maximum Government contribution from $521.43 to $260.72 per year.
No one earning more than $180,000 a year will qualify for the Government contribution.
“We are making these changes to the government contribution to ensure the scheme’s cost of taxpayer remain sustainable,” Willis says.
The changes come amid repeatedly expressed worries about limited funding available for the elderly in future.
The Government boasts that more than 3.3 million people are enrolled in KiwiSaver. But the average saving is just $33,514 per person. That level is nowhere near enough to sustain living standards in retirement, given that the pension has been found well short of meeting people’s needs in repeated studies.
The National Party would like to ease the fiscal cost of dealing with this by raising the age of eligibility for the pension, but this has been stymied by its coalition partner New Zealand First.
The Finance Minister appeared to confirm these worries at Thursday’s budget announcement, saying the fiscal pressures caused by these problems made her Government’s drive for economic growth ever more important.
The trade union movement is meanwhile warning of a regressive element to the KiwiSaver changes whereby employers could easily put pressure on employees to move down from the 4% default rate to the optional 3%, in order to reduce their own costs.
“This is a real danger,” says the Council of Trade Unions economist Craig Renney.
He adds higher paid people will do well out of the changes, because they will get an extra 1% on their salary, and this will give them more because their better salary provides a higher base rate for assessing their total benefit.
Business NZ is still considering these changes and is not commenting for now.
Meanwhile farmers may well get their wish to allow KiwiSaver funds to be used to purchase a new farm or herd of livestock.
This was not promised in the latest budget. But a private members bill by National MP Suze Redmayne has been submitted to fix this.
“We are now looking at making this a Government bill,” Willis told the budget lock up, but gave no further details.
Capital spending allowances
Meanwhile, new allowances for capital spending could help farmers as well as manufacturers. This plan starts immediately and will allow business to deduct 20% of the capital cost of new machinery or equipment, before existing depreciation claims are made.
There is some suggestion in the budget documents that this will extend to farms, and cover the cost of things like new fences.
The aim of this tax policy is to lift New Zealand’s lagging productivity levels, and Willis forecasts the scheme will raise GDP by 1%, wages by 1.5% and capital stock by 1.6% over 20 years.
Willis says the proposal will help grow the New Zealand economy, and will help reverse any employment-disincentive impact of the KiwiSaver changes, in the event of these becoming regarded as a sort of payroll tax.
4 Comments
New Zealand just does not understand the need to build capital. Or ownership.
We will remain a poor nation.
Thing is, as I read somewhere, our current super scheme means that we have one of the lowest elder-poor problems in the developed world.
All we need to do is make it sustainable.
And I feel if we means tested it now, we have the wealthiest elder generational cohort we'll have in a long time. So, now would see the most benefit to means testing as a means to head toward future viability.
Thing is, they don't want to upset the voting base...
Well done on increasing kiwisaver contributions - a step in the right direction - thank you
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