17 Aug 2010

Employers 'could not afford' compulsory savings

7:59 am on 17 August 2010

An employers group says the Government could face a revolt if employers are required to contribute to a compulsory superannuation scheme.

The Government is testing the public mood for a compulsory savings scheme, saying something needs to be done about New Zealand's skyrocketing debt.

A working group will be set up to advise on ways to lift the country's level of savings and investment, and the Prime Minister is not ruling out a move to compulsory superannuation savings.

At present, employers must contribute 2% of a worker's gross pay for members of the voluntary KiwiSaver scheme, while under Australia's compulsory superannuation scheme, the employer contribution is 9%.

Canterbury Employers Chamber of Commerce chief executive Peter Townsend says any contributions above 4% would result in rebellion by New Zealand employers, many of whom would not be able to afford it.

"The conditions are so tight out there, there's just no fat in the system," he said.

Australian attitude 'years ahead'

PricewaterhouseCoopers tax consultant John Shewan is pointing to Australia as a good example of the benefits of compulsory savings.

Mr Shewan told Nine to Noon Australians' attitude to savings and investment is years ahead of New Zealanders'.

However, Retirement Commissioner Diana Crossan said the Australian model is complex and riddled with the type of tax breaks that New Zealand couldn't afford.

A principal at Devon Funds Management, Paul Glass, believes the country faces a future of being a low-wage economy if it doesn't move to a compulsory savings scheme.

Savings problem 'needs to be addressed'

Finance Minister Bill English is warning employer groups not to get ahead of themselves in the debate, saying no decisions have yet been made.

Mr English says New Zealand has a long-running problem with national savings that needs to be addressed, and he welcomes a public debate on the subject.

On Monday, Prime Minister John Key said New Zealand's debt levels are growing at an alarming rate, and that he would be guided by good policy rather than ideology.

"If we identify, and are convinced, that New Zealand has a vulnerability because of its high foreign indebtedness and also that New Zealanders aren't as well prepared for their retirement as we might like them to be, then we need to consider our response to that."

Labour says it is looking at how KiwiSaver could become a universal scheme, but has not yet decided whether there should be an element of compulsion.