A key issue is the minimum worker contribution rate. We have previously submitted that there should be a 2% entry point in addition to 4% and 8%.
However, 2% is better than no contribution. Also a 2% deduction may be a better point of entry for new savers to establish a savings habit. The major concern is that thousands of workers will either opt out or not opt in to a KiwiSaver scheme because the minimum employee contribution rate is too high.
So what could possibly be the objection to a lower entry rate of 2%? If it is a concern that 2% from a worker (even with tax credits and employer contributions) will not deliver an adequate lump sum (or annuity) for retirement, then surely a lower than desirable balance is better than no balance.
Union officials are reporting that there is quite a lot of resistance among low income workers to join at a minimum of 4% of gross salary (which of course is more than 4% of take-home pay).
The fact is that there are now significant publicly funded benefits to belonging to a KiwiSaver scheme. In addition, the voluntary action of joining triggers employer contributions of up to 4%. It is therefore extremely unfair to set the bar too high at 4% minimum contribution and we urge the Committee to recommend a 2% option.
In this case, I am happy to agree with the CTU! Of course they do go on to say they would rather have a scheme where the employers pays 9% and employees 2% or something, but this will mean that low income workers who were funding KiwiSaver thorugh their taxes will now have a greater ability to go into it, and receive the generous 2:1 subsidies that apply to everyone earning up to $52,000 a year.Tags: CTU, KiwiSaver