Budget gives $40 a week to support saving

It is vital New Zealanders save more so we can better deal with our economic and social challenges, which is why Budget 2007 significantly enhances KiwiSaver.

A new system of tax credits and compulsory matching employer contributions will be introduced to encourage more saving and make it even easier for New Zealanders to save through KiwiSaver, the landmark work-based saving scheme.

“KiwiSaver gives New Zealanders a helping hand so more of us can start saving earlier in our working lives to avoid a harder savings challenge later in life,” said Finance Minister Michael Cullen and Revenue Minister Peter Dunne. “The changes we are announcing today will mean more New Zealanders can grow assets beyond the family home which is critical to growing an adequate retirement income to meet their aspirations.

“If we are to build a stronger economy and a fairer society we must do more to improve saving habits.

“If we save more, we spend less. That will mean less inflation and help to ease pressure on interest rates and the dollar. That’s good for workers, good for businesses and good for the economy.

“We have one of the poorest saving records in the world. Changing that requires boldness and leadership and that’s why the Labour-led government is making saving a centrepiece of Budget 2007.

“Budget 2007 supports saving by providing a contribution of up to $40 a week in tax credits – $20 per week for each KiwiSaver and another $20 a week via a tax credit for employer contributions. KiwiSavers People who save through KiwiSaver will benefit from a new tax credit matching contributions at 100 per cent, up to $20 per week (about $1,040 per year) from 1 July 2007. In addition, the government is kick-starting KiwiSaver with an initial upfront contribution of $1000 and will be providing an annual fee subsidy. The subsidy has been set at $40 per member, per annum.

Employers Where an employee opts to stay in KiwSaver, or to join it and make contributions, a compulsory employer matching contribution will be phased in over four years starting at one per cent in 2008/09. This will match the minimum employee contribution of four per cent by 2011/12. Employers will be reimbursed for the cost of matching contributions by the government through a new tax credit capped at $20 per week per worker (about $1,040 per worker per year), and their contributions will also remain tax free under amendments introduced last year.

“I am confident the enhanced KiwiSaver scheme will improve our saving record and help us achieve higher sustainable economic growth,” said Dr Cullen.

“The cost to support greater saving will not compromise our fiscal objectives. The KiwiSaver enhancements are projected to cost an additional $303 million in 2007/08, rising to $1.2 billion in 2010/11.

The saving challenge “The OECD recently said household debt in New Zealand had climbed sharply to around 160% of disposable income, higher than most other developed countries. Our official savings rate suggests for every dollar households earn, they spend $1.15 on average. Alternative measures of saving are less negative, but still have an alarming downward trend. A stark reminder of this trend is our persistent current account deficits, currently around 9% of GDP, among the highest in the OECD.

“Owning your own home is important for long term financial security. But it is not the only asset families need. Compared to many developed countries, many of us hold too high a proportion of our assets in housing, reflecting our poor level of savings overall. We need to increase saving in financial assets to sustain our lifestyles in retirement.

Good for savers “By enhancing KiwiSaver New Zealanders will be able to build up more financial assets, more quickly, so they can have the retirement they deserve. The tax credits will make it easier for many lower and middle-income workers to make the decision to join KiwiSaver. Employer contributions mean workers’ savings balances will also grow much more quickly.

“KiwiSaver reinforces the benefits of Working for Families in reducing inequalities. It will help more New Zealanders feel wealthier and more secure.

“And KiwiSaver also helps many into their first home because you are able to withdraw your own and your employers contributions as a deposit on a first home after three years. Some first homebuyers will be entitled to additional help from the government of up to $5000 each after five years saving. Good for business “The employer tax credit makes it much easier for employers to provide matching contributions. In the first year it will meet the full cost of the contributions for 95 per cent of the workforce. Overall, the net additional costs to employers by 2011/12 should overall be no more than one per cent of the national wage and salary bill at that point.

“KiwiSaver gives businesses more options to reward workers and so assist with the retention and recruitment of skilled staff from within New Zealand and overseas. I am confident it will also help to offset nominal wage increases.

“KiwiSaver also makes it much easier for many smaller employers to offer a workplace saving scheme. It is a simple, easy and administratively low cost scheme – contributions are collected through PAYE, on-paid by Inland Revenue to KiwiSaver scheme providers and then deposited in the savers account.

“KiwiSaver will also help deepen our capital markets, which should make it easier for businesses to access capital they need to grow and prosper.

Good for the economy “KiwiSaver will help lift economic performance. If we save more, we will no longer need to borrow so much from overseas to finance consumption and business expansion at home.

“If we are to own more of our own businesses it is vital we save more. If we are to reduce inflationary pressures and help our businesses prosper without the stress of high interest rates and a high dollar, we must save more.

“Active saving policies have worked overseas to strengthen economies like Singapore and Australia where there is now a trillion dollars invested in superannuation funds. In New Zealand there is just $64 billion.

“The changes the Labour-led government are announcing today mirror the reform of business taxes also unveiled in Budget 2007. Greater saving coupled with improved investment in innovation and productivity will help make the New Zealand economy much more resilient and flexible.

“KiwiSaver is good for workers and their families, good for businesses and good for our future prosperity. It will ensure we can face the challenges of today and tomorrow with much more confidence.”

This is a press release from Labour, Cullen and Dunne

KiwiSaver still a mystery for many Kiwis

Less than two months before the introduction of KiwiSaver, more than half of adult New Zealanders report they are not saving for their retirement, and more than three quarters admit they know very little detail about the new savings scheme.Less than two months before the introduction of KiwiSaver, more than half of adult New Zealanders report they are not saving for their retirement, and more than three quarters admit they know very little detail about the new savings scheme.

These are the two main findings of a recent public survey of 490 New Zealanders aged 18-64, undertaken by New Zealand investment and superannuation specialist, ING.

The online nationwide survey canvassed opinion from those eligible to save through KiwiSaver, the new voluntary, work-based Government savings initiative designed to encourage New Zealanders to save for their future.

The new scheme will enable employees to have part of their salary – either 4% or 8% – deducted automatically by employers and invested into an approved superannuation platform.

However, the results of the survey show there is a long way to go before New Zealanders are adequately informed about KiwiSaver. This comes against an already weak savings record among New Zealanders.

In the survey, only 13% said they felt they had their retirement savings completely under control, while more than half of those surveyed (53%) said they currently have no retirement savings pan.

According to the survey, while 62% of working age New Zealanders are aware that a workplace savings scheme is about to be launched, 78% said they knew few details of KiwiSaver.

Even those who felt they did know something about the scheme revealed clear knowledge gaps, after completing a brief true/false quiz on KiwiSaver.

The question answered incorrectly by most was about where KiwiSaver contributions would be invested, with over half (52%) believing funds will go into the New Zealand Superannuation Fund – the so-called Cullen Fund.

However, some of the survey data was positive, with other key findings including:

  • New Zealanders appear open to workplace savings schemes. At present, 25% of working age adults are in a workplace where a retirement saving scheme is on offer, and where such a scheme exists, 56% of those surveyed take part.
  • Of those who don’t have a scheme currently on offer, 60% say they would like to have that option.
  • Of all those surveyed, only 13% said they were against the concept of KiwiSaver, while two thirds said they support the idea to some degree.

And highlighting the sea change in sentiment since the landslide anti-compulsion retirement saving referendum 10 years ago, 50% of those taking part in the ING survey now say they favour or strongly favour the concept of mandatory saving through the workplace, with only 28% against the idea.

Steven Giannoulis, ING’s General Manager Marketing and Investor Services, says the survey clearly shows that Kiwis understand the need for a mechanism to help them save for retirement and see direct deduction from their wages as the most appropriate way to achieve this.

ING, one of six government-appointed default providers for KiwiSaver, intends running the survey again in June, just prior to the launch of KiwiSaver on 1 July 2007.

New Zealanders keen on KiwiSaver: AMP

A groundswell of support is building for KiwiSaver, increasing New Zealanders’ appetite for retirement savings and boosting savings patterns, according to the latest AMP SuperWatch research.Of the people surveyed, 68% said New Zealand Superannuation would be inadequate financial support for them in retirement. Three-quarters of non-retired New Zealanders say they are aware of KiwiSaver (up from 49% six months ago) and 46% say they are likely to join (up from 40%).

“The awareness of KiwiSaver is starting to bite,” AMP Financial Services Managing Director, Greg Camm says. ”The research says nearly half the working population is likely to join KiwiSaver.

“That’s an amazing change in six short months, in awareness and willingness to act.

“There’s been a lot of politics around KiwiSaver. But this research shows that New Zealanders are aware it’s coming and are keen to be involved.”

Camm says the research also shows a shift in savings behaviour with more New Zealanders saving and options other than property taking precedence in New Zealanders’ retirement savings plans.

“Nearly three out of four or 71% of New Zealanders now say they save.

That’s a significant shift from 65% six months ago. They are diversifying their investment with 62% saying they contribute to a private superannuation savings plan, 50% that they invest in bank or term deposits (up from 40%) and 40% (up from 29%) into managed funds. 47% (down from 52% six months ago) say they save for retirement by paying of their home mortgage.

“Also in an increasingly complicated and ever-changing financial environment more respondents say they use guidance in their financial planning from sources other than themselves or friends (66% up from 56%).

“This statistically significant research shows the appetite for retirement savings has gone up a gear. Coupled with support from Government, employers, unions and the financial services industry, KiwiSaver looks to be a real winner.

There is no doubt in my mind KiwiSaver’s changing the whole savings environment,” Camm says.

10 weeks to go – and much to do

Last week I chaired a one-day KiwiSaver Masterclass conference in Auckland which made me, as an employer, feel much better about implementing a savings scheme in our business.
Basically the thoughts I expressed in an earlier Blog are similar to how others are feeling.
The conference was attended by around 70 people who were predominantly HR and payroll people. A couple of the key takeouts for me were that, yes, the awareness is growing about KiwiSaver, but the knowledge base is still quite low.
In addition to that very few of the delegates had implementation plans in place yet – although the start date is just 10 weeks away.
For SMEs that probably isn’t too bad, but for bigger employers with multi-site operations I suspect things are going to be tight.
One of the issues we face is that there is still an information vacuum. No one has seen what the default products actually look like yet, and Inland Revenue still hasn’t completed some of the forms.
The good news here is that IRD plans to send enrollment packs out in late May. I know many people are looking forward to seeing these.
I understand from the default providers perspective that they are not allowed to promote their schemes until they are signed off by both the IRD and the Government Actuary.
From what I can see the GA –as he is called in the industry – is one of the most important and powerful people in the whole KiwiSaver chain, yet his office only has something like four staff. Geez that seems like one way to overwork people and slow progress down.
The conference was well-worth attending and I will have plenty more to comment on over coming days and weeks on KiwiSaver implementation.
Keep an eye out for future posts (best way to get them is to sign up to the KiwiSaver.net.nz mailing list). Likewise I am interested in any questions you may have and would like answered. Also would love to find out how others are going with implementation. Use the comments box below to get in touch with us.