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Many Still Confused As KiwiSaver Comes Into Force

Fuseworks Media
Fuseworks Media

By Sophie Hazelhurst of NZPA

Wellington, June 29 NZPA - KiwiSaver comes into force on Sunday,
just six weeks after the Budget made sweeping changes to the
benefits to be reaped by those who sign up.

Financial advisers say the decision on whether to join is a
"no-brainer" -- the benefits are too good to ignore.

Furthermore, employers should not be too concerned about the
rising costs to their payroll as tax breaks should keep them
relatively low.

However, many remain in the dark about KiwiSaver, with thousands
of employees and employers still waiting on information packages;
delays in the launch of the IRD's online interface; and budgeting
agencies saying they can not cope with the volume of calls being
diverted to them by the department's call centre.

Financial adviser Kevin McGavin, of the Terrace Financial Group,
said the changes introduced in the Budget on May 17 had taken
everyone by surprise.

The changes transformed it from a voluntary scheme with minimal
subsidies to a partly compulsory scheme that employers will have to
pay into from next April and which will give every contributor an
immediate government subsidy of up to $20 a week.

Mr McGavin said there had not been enough advertising or easily
accessible information distributed advising of how KiwiSaver would

If there had been, many concerns would have already been allayed,
he said.

The benefits of joining the scheme were obvious with a quick look
at the basic figures.

A person on $50,000 who put in 4 percent from next week would
contribute about $2000 in the first year.

For that contribution, the actual sum going into their KiwiSaver
account would be $4040 -- made up of their contribution, the
Government's tax credits adding to $1040, and the $1000 kick-start.

In four years time, when their employer would match their
contribution, the same employee would contribute $2000, but get
$5080 invested into their fund.

That kind of increase -- more than 200 percent -- came before any
returns on investments, which made it a very attractive scheme.

Employers could also be unnecessarily concerned.

Most contributions would be covered in the first two years with
the Government's tax break, and even after four years, when they had
to contribute 4 percent, this would not necessarily work out to be
too much.

Contributing 4 percent to an employee earning $50,000 in four
years would cost them around $2000 -- minus the Government's tax
break of $1040, leaving $960, which was tax deductible.

"I don't think enough simple figures have been put out there for
employers and employees to see.

"When they do see them, they can see it's a no-brainer."

Mr McGavin said some people were concerned about what would
happen if their fund provider went bankrupt.

"Like any registered superannuation plan, it is governed by
trustees and trustees look after your money. The fund is not
invested in the company's shares, it is invested in shares and bonds
from all around the world."

Mr McGavin thought the take-up would be quite high, particularly
among middle to higher income earners.

Treasury has predicted an initial take-up of 20 percent of
workers signing up to the scheme, rising to 50 percent over ten

The Inland Revenue, which says these estimates are conservative,
has hired almost 400 staff to get the scheme up and running.

Inland Revenue deputy commissioner Colin MacDonald said the
department had sent 1.5 million employee information packs and
200,000 employer guides to employers registered with the department.

More than 130,000 copies of the packs had been downloaded from
the website, which had seen growing numbers of visitors since it was
launched nine months ago.

Mr MacDonald said the focus in the first few months would be on
education and support.

"Employers' obligations for KiwiSaver are very simple -- provide
information to workers who want it and enrol new staff and others
who want to opt in."

A steadily growing number of inquiries were coming through to the
department's call centre from employers, individuals and tax agents,
Mr MacDonald said.

"Yesterday we had 1135 calls and we're geared up to take a lot
more calls from next week.

"We are also receiving an average of over 15,000 visitors a day
to the website."

Earlier this week, unions, lawyers and employers all predicted
difficulties with employment contracts under the KiwiSaver scheme.

Council of Trade Unions economist Peter Conway said one of the
main issues of concern was the 4 percent entry level contribution,
which could be a tough ask for low wage earners.

He said a 2 percent entry level for low wage employees with a
matching payment from employers was a preferred option.

It was an issue the union would raise before a final bill on the
scheme was passed, he said.

Simpson Grierson law partner and superannuation specialist Neil
Cameron said the traditional "total remuneration" concept was a
sticking point with KiwiSaver.

Some employers traditionally approached employees from a total
remuneration package point of view, where a salary was made up of
pay, and allowances for extras such as vehicles.

The KiwiSaver concept of gross salary wages was one that didn't
sit well with that concept, he said.

A nationwide survey of more than 300 businesses conducted last
week by business management provider MYOB showed almost 60 percent
of respondents felt they needed more information to understand their
KiwiSaver obligations.

Despite the release of Kiwisaver employer packs and widespread
advertising, almost 20 percent of businesses surveyed said they were
more confused than ever.

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