Cullen calls for submissions on work-based savings scheme

12.30pm

Finance Minister Michael Cullen is calling for submissions on a proposed "generic" workplace savings regime, the details of which were released today.

The Savings Product Working Group (SPWG) has provided the Government with advice on mechanisms to increase work-based savings.

Dr Cullen said the Government had yet to formally consider SPWG's report.

"It has come up with some practical options for one of the country's most serious long-term economic problems -- our poor level of savings," Dr Cullen said in a statement.

"The country's private debt levels and low savings is a weakness in our economy that is recognised internationally," he said.

"I am committed to dialogue on how we can encourage workers to save."

SPWG has developed a so-called "pathway" of Government intervention to combat the currently low level of savings.

"Whether this path should be followed and how far to travel along this path is a matter for Government decision, after public input and debate," SPWG said in a statement.

The five step pathway included: educating and informing the workforce on savings, tax reform to remove savings disincentives, a streamlined and more unified regulatory regime, an efficient system to collect and distribute employee contributions, and funding "sweeteners" from the Government to encourage participation.

SPWG also suggested a "simple mechanism" for the Government to introduce a generic savings regime, if it chose to.

The mechanism would: assign a special tax code to all new employees entering the savings scheme, collect a savings element in the same way tax was, creating a central administrator for the funds, and ensuring contributions could be voluntarily increased, suspended or maintained depending on job changes and absences from the workforce.

Workers could opt out of the scheme if they chose to, thus reverting to a standard tax code.

Dr Cullen said the SPWG's report included a range of options to determine employers who would be covered and timing for employees to opt out.

"The aim of the design is to minimise compliance costs for employers," Dr Cullen said.

"The savings would be forwarded to IRD (Inland Revenue Department), which would then forward the funds , through a central administrator, to a designated provider."

Dr Cullen described SPWG's proposal as "practical for workplace savings" and tackled a number of difficult issues with a range of answers.

"I am pleased to see the group has looked at methods to encourage workers to join a savings plan and further commit to long term savings."

Dr Cullen said he was committed to seeing progress made on workplace savings in the 2005 Budget.

- NZPA