KiwiSaver and Superannuation

I really like the changes to KiwiSaver – it keeps the good parts of the scheme, makes it easier for low income employees to particpate, gets rid of much of the paperwork, reduces the overall cost to taxpayers (making it more sustainable in the long term) yet still has huge incentives to save.

I suggest people read the full policy paper.

• Retain automatic enrolment of new employees, with the right to opt out.
• Retain automatic deductions from a member’s wages or salary
• Retain $1,000 ‘kick-start’ payment when people first join KiwiSaver
• Retain the member tax credit, paid by the government into KiwiSaver accounts, which matches members’ contributions up to a maximum of $1,040
• Retain compulsory matching employer contributions – but only for 2%, not 4%
• Retain employer contributions exempted from employer superannuation contribution tax (ESCT)
• Retain annual fee subsidy and the first home deposit subsidy
• Still spend $800 million a year on KiwiSaver
• Lower the minimum contribution rate from 4% to 2%, recognising how difficult it is for some people to put in 4%. Employees can still choose to put in 4% or 8%.
• Lower the compulsory employer contribution to 2% also, to match. Employers can choose to put in more than that but 2% is the requirement.
• Abolish the employer tax credit. Thank God for that – every employer in the land hates it – the paperwork creates more problems than the value of the credit. It makes it impossible to easily budget for staff costs also. The lower compulsory contribution matched with the abolishment of the tax credit means the overall impact on en employer with an employee on $52,000 is fiscally neutral – and no more paperwork!
• Allow employers to pay staff who do not go into KiwiSaver more, but make it illegal to reduce someone’s pay if they choose to go in.
• An employee on $50,000 will only have to contribute $1,000 a year to KiwiSaver and will get a total of $3,000 into their KiwiSaver account – a 200% subsidy. Previously they would put in $2,000 a year and get a total of $5,000 which is only a 150% subsidy. Either way it still represents a huge subsidy and you’re mad not to go into KiwiSaver.

There are also some bribes goodies on the wider superannuation issue:

• Keep floor for National Super at 66% (under Labour is meant to revert to 65% again next year)
• The tax cuts will see a couple on National Super getting $15 a week more in 2011 due to the link to the average after tax wage.
• Lift the partner’s abatement threshold for Super from $80 a week to $100 a week