Govt announces detail of workplace savings scheme

By Rob Hosking

Thursday 19th May 2005

Finance Minister Michael Cullen has unveiled a workplace savings package in the Budget based on last year�s Peter Harris-led Workplace Savings Group report.

Under the �KiwiSaver� programme, employers will have to provide access to superannuation schemes for their employees, and employees will automatically be enrolled when they join a new employer.The employee still has the option of pulling out after eight weeks, but the Budget provides for a $1000 incentive for them to stay in the scheme.

While joining is voluntary, savings are locked in until retirement age.

In a move that will allay the fears of existing workplace schemes, the government will allow those schemes to convert to a KiwiSaver product and be eligible for the subsidy.

Contributions will be set at 4% income, but the employee can opt for 8% if they wish.

The government will also meet the costs of administering KiwiSaver through the Inland Revenue Department.

A further incentive is that the government will subsidise the fees for approved KiwiSaver schemes.

No details are available on this yet, as �this level has yet to be finalised and will depend on consultation and negotiation with providers,� Cullen says.

People will also be able to take a contributions holiday of up to five years, if they wish to concentrate on reducing their mortgage.

The KiwiSaver scheme will be open to the self-employed. Details of the providers are still very sketchy. There will be two types of KiwiSaver providers: default providers and other qualifying providers.

Default providers are for those employees who do not select a provider, and will be selecting by a competitive tender process designed in part to negotiate lower fees.

The qualifying providers will need to meet a set of minimum criteria � again, these have yet to be determined.

The KiwiSaver package is accompanied by a large financial literacy campaign - $90 million in the 2006/07 year, but jumping to $280 million in 2007/08.

To put this in perspective, the Retirement Commission�s entire budget last year was just over $3.7 million.

Comments from our readers

No comments yet