Savings scheme at work

The retirement savings scheme proposed in a discussion paper to Finance Minister Michael Cullen yesterday will be portable.

Q: Would I have to join?

You would automatically be enrolled when hired for a new job, and opt out after a certain time. Existing staff can also decide to join. You can withdraw at any time.

A: How would it work?

Employers would assign a special tax code to new workers, and existing workers joining. Contributions would be collected by Inland Revenue and passed to a central administrator who in turn would give it to approved fund managers to invest.

Q: Could I cash it in at any time?

A: The group says savings will not be "locked in", but restrictions could be built into rules governing access to the money.

Q: Do employers have to subsidise the savings?

A: No, but they can if they wish.

Q: Would all workplaces have to take part?

A: No. The group recommends only those with five or more employees.

Q: Would all employees have to take part?

A: No. The group recommends 5 per cent on income above $16,712, but not less than $10 a week. On that formula, that would mean a threshold of $27,112 before deductions began.

Q: What are some of the other questions still to be decided?

A: The restrictions around cashing up the fund early, how payments are made upon retirement, who decides which super scheme provider the savings go to initially, what "sweeteners" would be offered by the Government to make participation more attractive.

Q: What say my particular fund goes belly-up?

A: Bad luck. The Government does not intend giving guarantees, just as it doesn't with other private savings.

Political reaction to the report

Most parties have given a cautious welcome to the work-based savings plan, indicating Labour would have the numbers to pass it into law:

National - John Key

Unless the "sweeteners" are significant, it is very unlikely it will work, and we don't see the point in putting out a policy just for the sake of spin which ends up costing employers quite a lot. But if it is a genuine attempt with some evidence to prove it might work, then we'll look at it.

New Zealand First - Winston Peters

It is a small step in the right direction but it does not go nearly far enough. The automatic enrolments of new staff in a savings scheme is encouraging, but people have the option of withdrawing if they choose.

Green Party - Rod Donald

We are still studying the detail, but the good news is that it recognises the need for employers to take a more active role in helping their staff save for retirement and it proposes efficient mechanisms to make this possible.

Act - Deborah Coddington

I support anything that would encourage people to save, and it's good that the working group's main objective seems to be that. The reservations I would have is that it's gathered by the tax system.

United Future - Peter Dunne

This is a cautious good start but a lot more work must be done. But the real problem underpinning a lot of New Zealand's poor economic performance is a lack of savings is getting to the point where we can't ignore it much longer.