Hon Bill English

Minister of Finance

9 December 2008
Media Statement

Changes make KiwiSaver more affordable for all

KiwiSaver changes introduced to parliament today will make the scheme more affordable for members, employers and taxpayers, especially in the current economic climate Finance Minister Bill English said today.

The KiwiSaver changes are included in the Taxation (Urgent Measures and Annual Rates) Bill.

“The Bill includes changes to National’s pre-election policy, restoring the member tax credit to a dollar-for-dollar subsidy up to $1040 for low and middle income earners. The government has decided to abolish the member fee subsidy of $40 per year to help manage the cost of this decision,” Mr English said.

The main changes to KiwiSaver are:

• The minimum member contribution rate will reduce from 4% to 2%, and 2% will be the default contribution rate for new employee members from 1 April 2009.

• The member fee subsidy will be discontinued from 1 April 2009.

• Compulsory employer contributions will be capped at 2% from 1 April 2009.

• The employer tax credit will be discontinued from 1 April 2009.

• The employer superannuation contribution tax exemption will be capped at the compulsory employer contribution of 2% from 1 April 2009. (That is equivalent to 2% of the employee’s gross salary or wages.)

• The KiwiSaver Act will be amended to make it clear that upon joining KiwiSaver, no employee can have their gross pay reduced as a result of employer contributions. This will ensure that when employees join KiwiSaver, the compulsory contributions from their employer are a genuine addition to their existing pay. The changes will also provide employers and employees with the ability to negotiate their own arrangements in good faith. The Employer Relations Act amendment relating to KiwiSaver will then be obsolete, and will be repealed from the date of assent of the Employment Relations Amendment Bill.

• The KiwiSaver Act will also be amended to provide a limited exemption from compliance with securities and other related legislation for a limited period so that providers have time to update prospectuses and investment statements, for example.

“We have retained the main features that have made KiwiSaver a popular means of saving for a better standard of living in retirement –the member tax credit of up to $20 a week, the $1000 kick-start, mortgage diversion, deposit subsidy and the first-home withdrawal provisions. And we have ensured that it is a more affordable scheme for low income earners and a more sustainable scheme for New Zealand,” Mr English said.

Moving from National’s pre-election policy of the member tax credit matching the minimum member contribution rate of 2%, to matching dollar-for-dollar up to $1040, would have come at a cost of $791 million over five years. This would have meant the final tax and KiwiSaver package would have gone from saving $566 million to costing $225 million over five years.

To help manage this cost and to ensure the package is fiscally neutral, the government has decided to remove the member fee subsidy and reduce costs by $203 million. This brings the total net cost of the package over five years to $22 million.

An information sheet on the changes to KiwiSaver is available from the Beehive website: http://beehive.govt.nz/sites/all/files/KiwiSaver_info_sheet_0.pdf

ENDS

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