Recommended.co.nz | Guide2.co.nz | Voxy.co.nz | Gimme.co.nz
Homepage | login or create an account

Govt Looking At Kiwisaver Change

Contributor:
Fuseworks Media
Fuseworks Media

The Government will introduce legislation this week that is likely to include a change to KiwiSaver policy to help low income workers -- costing an additional $700 million over five years.

Under Labour savers could contribute either 4 or 8 percent of their wage with a government subsidy of up to $20 a week and compulsory employer contributions, rising to 4 percent by mid 2011.

National's policy was to set contributions at the lower 2 percent which would be matched by the Government. The savings would go towards its tax cut package.

However, that meant those earning under $52,000 would get far less than those on bigger incomes.

Prime Minister John Key told reporters at his post-Cabinet press conference that ministers considered the issue this morning.

"If you earned $52,000 a year, you pay in at 2 percent you'd have $1040 as your member tax credit but if you earned $26,000 a year and paid in at 4 percent under the policy we had you would only be matched at $520. There's some inequity about that and we are considering that issue."

KiwiSaver legislation would be considered by Parliament this week.

Mr Key said if the Government matched dollar for dollar up to $1040 it would cost $700 million over five years.

NZPA understands the cost could be met in two ways. Firstly, the cuts National made to its tax package before the election yielded savings of about $580 million over five years.

That is expected to go into the revised KiwiSaver scheme.

The rest could come from the abolition of the subsidy payment, the one-off $40 a year the Government puts into KiwiSaver accounts.

Abolition of the payment is understood to be under consideration.

By using the savings from the tax cut package and abolishing the payment, the new provision would be fiscally neutral.

Mr Key said the Government had considered the fiscal position against equity and details would be revealed soon.

There would be "different moving parts" to the changes.

One suggestion has previously been put up by unions.

They suggested a flat $20 contribution on weekly contributions by savers of $20 or more.

Council of Trade Union's (CTU) economist Peter Conway said the changes would soften the blow for low income workers, but fundamental problems would still remain.

"The CTU has always supported a 2 plus 2 option but not on the basis of removing the requirement for employers to match up to 4 percent and the removal of employer tax credits," Mr Conway said.

The CTU has raised many other points of concern about KiwiSaver including the damaging impact on low income workers of the removal of employer tax credits which effectively subsidised employer contributions.

This made it less likely that the employer would attempt to offset their KiwiSaver contributions against a wage increase.

Featured Books on KiwiSaver & Saving

Credit Card Comparison TablesCompare Credit Cards - Independent interest rate and fees comparisons for New Zealand banks.

About guide2.co.nz : money

Find the latest money news and 'how to' guides on Guide2Money.

Ask our researchers your personal finance questions.

Your Questions. Independent Answers.