Budget 2005: KiwiSavers to get $1000 kick-start

A work-based savings scheme open to two million New Zealanders will be kick-started by the Government paying $1000 into each new retirement account.

The KiwiSaver plan, due to begin in 2007, is aimed at encouraging people to save and Budget figures estimate it may attract 415,000 workers in its first three years.

While Finance Minister Michael Cullen emphasised the scheme was "voluntary", the KiwiSaver package he outlined yesterday essentially requires people to participate in work-based savings schemes unless they take steps to opt out.

Savings are meant to be locked into a scheme until a person retires, but low to middle income earners may be able to access their money to buy their first house and could get another Government subsidy of up to $5000 for that.

All workers will have to be enrolled for a KiwiSaver account when they start a job, but get three weeks to decide if they do not want to join a scheme.

Once enrolled, they can choose to pay either four or eight per cent of their gross income into the scheme.

Workers can take their accounts with them when they switch jobs, and can pick a savings scheme to join from a range of approved provider companies chosen by tender.

If anyone cannot work out which scheme to join, one will be selected at random for them.

Employers do not have to make any financial contribution to workers' accounts, but will deduct workers' contributions from pay packets as they do with income tax.

People who already have a superannuation scheme will also get the $1000 Government contribution if they convert to a KiwiSaver account.

Finance Minister Michael Cullen said yesterday there were still "one or two strange people" who did not think New Zealand had a savings problem, even though savings rates here were among the lowest in the developed world.

But critics suggested the scheme would struggle to influence savings habits.

The National Party warned people would be tempted to enrol in KiwiSaver to pick up the $1000 contribution, and then effectively let the fund lie dormant.

That is because once opened, a worker can apply to take an unlimited number of five-year "holidays", in which they do not save.

The Engineering Printing and Manufacturing Union said workers would support workplace superannuation schemes, but even a 4 per cent minimum savings requirement would be out of reach for many low-incomed people.

An employer already operating a superannuation scheme can apply to opt out of automatically enrolling workers, provided their scheme meets minimum criteria such as accounts being transferable.

Employers can carry on contributing to existing superannuation schemes, or apply to have those schemes transferred to a KiwiSaver product.

Final details of the policy, including the selection process for providers, are still being decided and legislation to implement the policy is expected to be introduced to Parliament before the end of the year.

The costs of operating KiwiSaver, including running an education campaign, will be $90 million in the 2005-2006 year, rising to $280 million in the scheme's first year, 2007-2008, $143 million in 2008-2009 and $154 million in 2009-2010.

How it works

* KiwiSaver accounts will open from April 2007 with a $1000 Government contribution.
* You will be automatically enrolled when you start a new job - but you can choose to opt out.
* You can choose to contribute either 4 or 8 per cent of your gross income.
* Money will be deducted from your pay packet by your employer.
* You can take your funds saved with you when you switch jobs.
* Companies holding your savings will be regulated but the schemes are not Government guaranteed.
* Savings will usually be locked in schemes until you reach retirement age.
* In times of hardship you can apply to get your money or take a savings "holiday".
* Employers may contribute to workers' accounts but they do not have to.