Employers face heat on helping to boost savings

The Government expects unions will one day pressure employers to contribute to worker savings under the KiwiSaver scheme.

Finance Minister Michael Cullen confirmed yesterday that there would be no sweeteners to encourage employers to contribute to the personalised portable savings scheme.

"Certainly not at this point," he told reporters shortly before the KiwiSaver Bill was introduced to Parliament. "We are hopeful that in negotiations, employees and trade unions will seek an employer contribution over time."

The KiwiSaver scheme will in fact be a series of private savings products, governed by law, where savings will be deducted by an employer and forwarded to Inland Revenue.

It is designed to supplement the state pension at retirement age and to boost savings.

The scheme will begin next year. From then, new employees will be automatically enrolled either in their own scheme, one of their employer's choice or, if no choice is made, a default scheme chosen by Inland Revenue.

Contributions will be locked in until retirement unless the saver permanently emigrates.

The schemes will not be Government guaranteed but will be regulated in a similar way to registered superannuation schemes.

Dr Cullen estimates that 25 per cent of workers who are not members of a savings scheme will join KiwiSaver.

Except in exceptional circumstances, access to the funds will be allowed only for first-home buyers who have been saving for at least three years.

Several important details are yet to be determined, such as the income level at which a deposit gift for first-home buyers will cease to be available.

Dr Cullen suggested it might be around $100,000 for couples.

There will also be a cap on the value of the house for which the Government will contribute to the deposit, but that will vary regionally.

Council of Trade Unions economist Peter Conway welcomed the bill as bringing benefits to workers.

"Workers' wage movements have been dwarfed by housing affordability, with house price increases of over 50 per cent in three years, compared with private sector wage increases of around 8 per cent in that period."

Wages had to continue to rise so that a 4 per cent contribution was affordable for many more workers than at present.


Kiwisaver

* A voluntary saving scheme for people aged 18 to 65 in full-time and part-time work.
* Personalised accounts, portable from job to job.
* New employees automatically enrolled, but given six weeks to opt out.
* Employees choose to save 4 or 8 per cent of gross pay.
* Contribution holiday for up to five years at a time can be taken after 12 months.
* Initial $1000 Government contribution for each account, locked in until age 65.
* Withdrawals allowed only once, for first-home buyers.
* After three years, first-home buyers eligible for $1000 gift for each year of saving, to a maximum of $5000.