KEY POINTS:
In one of life's little ironies the popularity of the Government's Kiwisaver scheme is a reason to make it compulsory. That is the view at least of Revenue Minister Peter Dunne, who told a tax conference last month: "If the take-up continues at this rate ($200,000 in the first three months) it might be easier to make the scheme compulsory, thereby removing the employer compliance costs associated with people opting out."
The scheme is already compulsory for employers, who from April will have to contribute 1 per cent of enrolled employees' gross pay, rising to 4 per cent by 2011. But employees will retain the choice of joining or not, unless the tax collector's instinct takes over and Mr Dunne emphasises that his is not yet an agreed Government view.
Compulsory employer contributions were a late addition to the Kiwisaver scheme, announced with little warning in this year's Budget. Critics say it would have been better left to rely on the ample incentives the Finance Minister has built into the scheme. With carrots for employees and the stick for employers, the scheme looks needlessly unbalanced.
It has been improved in other respects, though, by the latest fine-tuning of the bill to add the compulsory employer contributions to the 2006 Kiwisaver Act.
Parliament's finance and expenditure committee has proposed other clauses to allow contributions of 2 per cent of income rather than 4 per cent until 2010, prevent "double dipping" by staff already in employer-subsidised schemes, and give low-paid subscribers a second chance to receive the scheme's first-home purchase subsidy. Of those, the measure to prevent double dipping could be the most significant - it was untenable that members of employer-subsidised superannuation schemes would have been able to take full advantage of Kiwisaver as well. If their independent schemes meet conditions specified in the bill, compulsory Kiwisaver contributions will be waived.
The risk now, as unions note, is that employers will be inclined to close their more generous schemes in favour of Kiwisaver.
The option for employees to contribute just 2 per cent would be equally significant were it to become permanent, as unions hope. But so far it remains a temporary bridge for those who find it too hard to forego an additional 4 per cent of gross income - and next must convince their employer to voluntarily contribute a matching 2 per cent. It might not be until 2009, when the employer's 2 per cent is compulsory, that "two plus two" becomes a popular option - so popular, unions hope, that the Government shrinks from enforcing the 2010 expiry.
As popular as Kiwisaver already seems, only 7 per cent of income-earners aged 20 to 45 have enrolled so far. Nearly half are over 45 and, of the rest, a full 42 per cent are under 20. It is that last figure that is most encouraging even if very few earners in their 20s and 30s have yet found the means to save.
The high uptake of under-20s will be new employees automatically enrolled and who have not exercised their right to withdraw and may not be aware of it. By the time they become aware a nest egg is forming for them they may have acquired the savings culture the scheme hopes to promote. The scheme is proving so attractive that some worry that when it is added to the "Cullen fund" for public pensions we may be locking away too much of the national income in retirement savings, leaving insufficient funds to sustain prosperity in the meantime. It is a delicate balance, best struck by voluntary decisions. Compulsion is the element of Kiwisaver we could come to regret.
