Now you’ve got a choice


Mary Holm says National’s policy won’t undermine KiwiSaver:

The National Party’s proposed changes to KiwiSaver would considerably reduce two of the biggest gripes about the scheme – that some people can’t afford it and that it ties up savings.

They also show National is broadly supportive of KiwiSaver, allaying fears that the party would make it not worthwhile to join if it became the government.

True, the freezing of employer contributions at 2 per cent of pay from next April – rather than rising to 4 per cent by 2011 – would make KiwiSaver somewhat less attractive for employees.

But with the government kick-start, tax credits and other incentives unchanged, KiwiSaver would still be the best way for most employees to save.

. . . For the self-employed and non-employees, including children, KiwiSaver would be unchanged under a National government.

The reduction of the minimum employee contribution from 4 per cent to 2 per cent of pay means it would be easier to afford KiwiSaver, especially after taking tax cuts into account. People earning $40,000 or less have already received tax cuts from October 1 that would more than cover 2 per cent KiwiSaver contributions, and those on higher incomes aren’t far behind.

By the time National’s April 2009 tax cuts took effect, everyone’s pay would have increased by considerably more than 2 per cent.

People reluctant to tie up 4 per cent of their pay – usually until they buy their first home or reach NZ Super age – could tie up only half that amount and still receive the incentives. They could continue to save the other 2 per cent in a non-KiwiSaver vehicle, with the money accessible at any time.

Many would find this 2 per cent option attractive. It would enable them to take out savings to start a business or to help out family or friends – things they can’t do with KiwiSaver money, although it can be withdrawn if the member suffers serious illness, financial hardship or goes overseas.

Anyone who would prefer to tie up their money, because they would otherwise spend it, could continue to contribute 4 or 8 per cent of pay to KiwiSaver.

Lowering the minimum employee contribution to 2% makes it easier for those with less money to spare for savings and those who can afford more can contribute more if they choose to or invest the extra savings where they aren’t tied up until retirement.

National trusts us enough to give us more choice.

UPDATE: Keeping Stock agrees 2% may attract more savers.

UPDATE 2: so does Barnsley Bill.

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