KEY POINTS:
They didn't exactly cheer KiwiSaver to the rooftops but workers at Pacific Steel in Otahuhu yesterday gave a generally sympathetic hearing to its architect, Finance Minister Michael Cullen.
Opinion polls have found that only 37 per cent of those not already in a superannuation savings scheme plan to join KiwiSaver. But Dr Cullen found a good number of them at the steel mill, where the workers earn an average of around $15 an hour.
Admittedly, he had picked his factory for the KiwiSaver promotion carefully. Pacific Steel is part of Fletcher Building, which as agreed to pay a 2 per cent employer contribution into its workers' KiwiSaver accounts from the day the scheme kicks off on Sunday - almost two years earlier than required by law.
Only about 10 per cent of Dr Cullen's audience were still in old-established Fletcher superannuation schemes, which were dismantled years ago. The company expects about half to join KiwiSaver.
Some, like Nigel Willcox, were old enough to have paid money into a state-backed super scheme the last time a Labour Government established one in the mid-1970s - only to see it scrapped by the incoming Muldoon Government in 1975.
"I would have had more than $160,000 in the bank by now. It was just ludicrous that they scrapped it," Mr Willcox said.
"I hope this one goes ahead for the younger generation. I think it's good for the workers of this country."
This time, Dr Cullen assured him, his scheme would be safer from any future National government because the workers' funds would be held in private sector funds and could not be returned by state fiat as in 1975.
"You own the money," he said. "The only thing the Government can do is change the compulsory employer contributions and the tax credits.
"They would be mad to change the tax credits and they might be surprised how much business will buy into this."
One of the workers' main concerns was about reported comments by Dr Cullen suggesting that KiwiSaver would be a factor in wage negotiations - in effect, that workers should accept lower pay rises in exchange for their bosses' contributions to their saving.
"As people with a contract negotiation coming up, we are quite interested to see whether the company does it [a pay rise] in addition to KiwiSaver or subtracts the 2 per cent [employer contribution]," said mill worker Tony Gibson.
Dr Cullen was quick to sidestep that one. "When the Australian scheme came in, it was very much an offset against a wage rise in a high-inflation environment," he said.
But this was different. Inflation was low and employers were being given a tax credit of $20 a week ($1040 a year) on their contributions, which would fully offset the cost of their contributions on incomes of up to $104,000 a year up to March 2009, when they will be required to contribute only 1 per cent of their employees' incomes.
In the year after that, when they will have to contribute 2 per cent, the tax credit would still offset the cost for any employee earning up to $52,000.
"So you are really talking about the third and fourth years," Dr Cullen said.
"Then there will have to be a moderate trade-off but it will be much, much less than the annual wage movement. The net cost to the employer will be about 1 per cent of the total wage and salary bill, so it's only around 1 per cent or so where there is a legitimate case for considering bargaining."
Another worker was worried that small businesses opposed the scheme.
Dr Cullen said they had even less reason to worry than bigger employers because their workers tended to be lower paid, so that most of the cost of their contributions would be offset by the employer tax credit.
Any net costs that remained would be tax-deductible expenses so the employers would effectively pay only two-thirds of the costs.
"It doesn't take much change in the interest rate structure over time for that to be completely swallowed up, because interest is a cost of business."
Workers also quizzed Dr Cullen about "ring-fencing" losses on investment properties so their owners could not claim them as deductions off their other incomes. He said any changes would not be retrospective.
"It would have to be phased in over time, otherwise you would leave people heavily exposed with their current financial arrangements."
Employers urged to pay wage rises into scheme
The employers association is advising its members to contribute to their employees' KiwiSaver accounts only in exchange for lower pay rises.
Employers and Manufacturers Association (Northern) chief executive Alasdair Thompson says employees should be offered the choice of a tax-free employer contribution to KiwiSaver or a taxable pay rise of the same percentage.
"EMA is recommending to all employers who are going to make KiwiSaver contributions from July 1 or April 1 that they make an offer to their staff to increase their pay by 1, 2, 3 or 4 per cent, but tell them that they can take it as a tax-free contribution to KiwiSaver or take it as cash and pay tax on it," he said yesterday.
"You have to give every employee a piece of paper that sets out their new remuneration package with KiwiSaver or without it and that if they change later from 'without-KiwiSaver' to 'with-KiwiSaver' they can't get another 4 per cent. They get it once only."
Mr Thompson said employees understood that they could save on taxes by taking their pay rise as an employer payment to KiwiSaver.
Those earning above $60,000 a year now pay 39 per cent tax on rises, but with KiwiSaver funds they will pay only 30 per cent on earnings from next April.
"Heaps of firms" had opted to make voluntary employer contributions from July 1, or to pay higher than the 1 per cent required from next April, in deals of this kind with their workers.
"Many, many firms are doing 4 per cent from April 1."
