20 May 2011

KiwiSaver still a 'very attractive scheme'

6:58 pm on 20 May 2011

PricewaterhouseCoopers chairman John Shewan says KiwiSaver remains a very attractive scheme for workers - though hopefully the Government will stop tinkering with it now.

Under changes announced in Thursday's Budget, the Government's contribution to the scheme will be halved, while employer contributions will be taxed at the employee's marginal rate, from July next year.

Workers and firms will have to stump up more, with the minimum contribution rising from 2% to 3% from July 2013, when the pace of economic activity is expected to be stronger.

The Government estimates it will save $2.6 billion over the next four years, improve national savings, and reduce the country's dependence on foreign lenders.

Mr Shewan says people will be worse off mathematically, but overall, he says, the changes will result in an increase in private savings, and there's no reason to withdraw from the scheme.

"I think it still makes sense for new employees to go into KiwiSaver," he says. "In fact, you could say 'Why would you not?', because the Government's about to give you $1000 tax-free. I think it's pretty generous."

As for employers, Mr Shewan says they need to know they can build their increased contribution into an employee's overall remuneration package, otherwise it is effectively just a payroll tax.

"It's a real concern that we keep getting tinkering [with KiwiSaver]," he adds. "We ned a period of stability and I think the Government hopefully recognises that."

CTU sees contradiction

The Council of Trade Unions says changes to KiwiSaver send contradictory messages.

CTU economist Bill Rosenberg says existing KiwiSaver investors will be committing more money to the scheme but some of that will be used to pay off the Government's deficit.

In other words, he says, the Government is encouraging people to save while at the same time removing many of the scheme's incentives.