Cabinet considering extending employer Kiwisaver beyond the age of 65

NZ First leader and Deputy Prime Minister Winston Peters says that Cabinet is considering extending the age when employers have to contribute to employees’ Kiwisaver. The age employers are required by law to contribute is currently 65.

But Prime Minister Jacinda Ardern says that no decisions have been made.

And Seniors Minister Tracey Martin says “we need older people to stay in paid work”.

RNZ: Peters and Ardern send mixed messages over KiwiSaver changes

Deputy Prime Minister Winston Peters and Minister for Seniors, Tracey Martin, were at a Grey Power conference yesterday to announce an injection of more than $8 million to revamp the SuperGold card website, a new app and in funding digital literacy training for seniors.

During the announcement Ms Martin stressed the importance of maintaining a workforce over the age of 65.

“We are going to increasingly need older people to stay in paid work if they want to. We can not have 1.2 million seniors dropping out of the workforce,” she said.

At the conference, Horowhenua Grey Power president Terry Hemmingsen, who was called in to work after he had retired, asked why his employer – the government – had scrapped its contributions to his fund.

“The day you turn 65, that 2 percent employer contribution stops. With government agencies, so being in education, I could keep paying in myself, and did. But I lost the 2 percent. Now that’s discriminatory on the basis of age, wouldn’t you think?”

On that basis you could also say that paying people National Superannuation from age 65 is discriminatory on the basis of age.

But Hemmingsen has a point. People employed with negotiable wage rates can factor in things like the the employer contribution. The KiwiSaver contribution is part of an overall remuneration package, and once that ceases at 65 theoretically at least pay rates can be renegotiated.

But people employed by the Government with industry wide rates of pay, like teachers, may not be able to do that.

Perhaps a solution is for public servant pay rates to be adjusted once someone turns 65.

NZ Herald: Deputy PM Winston Peters says Cabinet is looking into changes to NZ Super eligibility

He said that Cabinet is considering changing the KiwiSaver rules so people over 65 were able to have their contributions matched by their employer.

speaking at the Grey Power annual meeting today, Peters hinted that changes were on the way in this area.

“Something like 70,000–80,000 people have come into our country … and whether they pay tax or not, have acquired full superannuation just like some of you who have worked 45 years,” he told those gathered.

“The issue of being able to arrive in our country and get full super after just 10 years is being addressed as I speak.”

Speaking to media after the speech, he said the Government was looking into increasing the amount of time someone has to live in New Zealand before being eligible for the scheme.

Asked if the Government’s position on the issue would be unveiled before the 2020 election, he said: “Very much so, yes”.

At the moment, if someone over 65 is still working their employer is not obligated to match their contribution.

Peters said this was “not right”.

“And the Government and Cabinet are looking at that matter as we speak – trying to see why that would be fair and, more broadly, why would we not keep on encouraging older people to keep on saving?

“It’s a serious question, we’re looking at that right now.”

Prime Minister Jacinda Ardern was less enthusiastic, but also non-committal:

“New Zealand First has long held a policy in this area and it’s absolutely within any party leader’s rights to reiterate that,” she said at a post-Cabinet press conference today.

“But I note that the Deputy Prime Minister also acknowledged that no decisions have been made.”

“When we make any decision related to retirement or savings, they will be announced – I’m not going to speculate on any other policy work that is being done, or has been done”.

I am concerned that Cabinet could be discussing this possibility and could make a decision according to Peters without proper public discussion and debate.

There is no reference to KiwiSaver in the Labour-NZ First Coalition Agreement.

Kiwisaver and low life expectancy

An interesting issue on Kiwisaver for people whose life expectancy means that the odds are against them making it to 65, they age you have to be to use your Kiwisaver savings.

NZH: Joan and Tim Fairhall take KiwiSaver fight to Parliament

A mother and son seeking access to his KiwiSaver funds before his likely premature death took their fight to Parliament today.

Joan and Tim Fairhall today made a submission to a select committee considering changes to tax law.

Joan Fairhall, is trying to get KiwiSaver laws changed that are preventing Tim from accessing his money before the age of 65.

Tim has Down Syndrome which will lower his life expectancy, and he may not live until he is 65.

There is an obvious problem for people with Downs Syndrome, whose life expectancy is about 60 years.

The only current ways to cash up early (before you reach 65: Accessing early

  • Buying your first home
  • Moving overseas permanently
  • Significant financial hardship
  • Serious illness

So no option if you just have a low life expectancy. There are common conditions that lower life expectancy, like diabetes.

Life expectancy in general in New Zealand (Ministry of Health) :

Title: Figure 5: Life expectancy at birth, by gender, Māori and non-Māori, 1951–2013

In 2013, life expectancy at birth was:

  • 73.0 years for Māori males
  • 77.1 years for Māori females
  • 80.3 years for non-Māori males
  • 83.9 years for non-Māori females.

So Māori males on average would get about 8 years to use their Kiwisaver savings, while non-Māori males get nearly twice that at 15 years.

This disparity would be more of an issue for Māori men with something like diabetes.

As a matter of general interest, life expectancy depends on when you were born. And if you survive until you are, say, 60, your expectancy increases.

Here’s a life expectancy calculator (from Fisher Funds).

Clearing bombs, clearing Kiwisaver

A couple of things came up yesterday related to bombs – the Police have indicated there is no evidence indicating that Kiwisaver funds illegally invested in arms manufacturers.

At about the same time John Key announced giving $11.5 million to Laos to help them claim old bombs.

Stuff: Prime Minister John Key pledges $11.5m to help clear unexploded munitions in Laos

New Zealand has contributed $11.5 million to help support clearing unexploded munitions in Laos.

Prime Minister John Key made the announcement in Vientiane where he is attending the East Asian Summit and met with Laos Prime Minister Thongloun Sisoulith.

“Laos is the most heavily bombed country on earth by head of population and is still clearing around 80 million pieces of unexploded munitions left over from the war in Indochina during the 1960s and 1970s,” Key said.

For 20 years New Zealand has been helping with the clean-up.

“We still have about 40 or 50 people a year being either killed or losing limbs by these bombs going off,” he said.

US President Barack Obama announced on Wednesday a further $90m over a three-year period to speed up the process of clearing Laos. 

Large areas, often including schools, currently have to be cleared in order to diffuse a bomb, which can cause a large amount of damage.

However, New Zealand technology will be trialled and used over the next couple of years to melt casings “without having to dig up or explode each piece,” Key said.

It’s good that New Zealand is helping Laos clean up, but it’s a huge long term job.

In the meantime:

Kiwisaver / Cluster Munitions Act assessment complete
Thursday, 8 September 2016, 12:34 pm
Press Release: New Zealand Police
Police and FMA complete assessment – Kiwisaver / Cluster Munitions Act
The Police, in consultation with the Financial Markets Authority (FMA), have completed an assessment into whether the Cluster Munitions Act (“Act”) is likely to have been breached by New Zealand KiwiSaver fund managers.

A feature of fund management is the fact that fund managers generally buy their securities on traded markets, so these are shares traded between shareholders as opposed to providing funds to the companies that produce these weapons.

Additionally, New Zealand fund managers also place money with offshore fund managers, who may undertake share trading on overseas markets, rather than the New Zealand fund managers investing directly.

There are significant threshold issues with regard to establishing breaches of the Act, and at this stage there is no evidence to indicate offending.

Should there be any new evidence that comes to light this will be assessed and acted on as required. 

With investment funds investing in investment funds, and with often convoluted  company ownership, it can be difficult ensuring that investments are ‘ethical’.

I certainly don’t want to be investing in cluster bomb manufacturing, or any bomb manufacturing. But it’s more of a ‘feel good’ stance than effective, if no New Zealander invested in any arms manufacturer, directly or indirectly, it would do nothing to stop man made carnage.

It also gets complicated when a company may have an association with the manufacture of arms but also manufactures things that are useful and ‘ethical’.

And it gets very complicated when you consider the reality that arms are needed to defend as well as to attack, and when bad people attack someone has to defend with something.

Thin end of the ‘ethical investment’ wedge

Last week it was reported that some Kiwisaver funds invested in munitions and tobacco companies. This prompted a lot of comment about ‘ethical investments’.

An ODT editorial looks at Socially responsible investments:

Last week, Commerce Minister Paul Goldsmith said in Parliament there were indications several KiwiSaver providers had broken strict laws banning investments in cluster bomb makers.

A newspaper investigation analysed more than 100,000 individual assets held in nearly 500 KiwiSaver funds looking for 169 companies blacklisted by the New Zealand Superannuation Fund.

The analysis found half of KiwiSaver providers — mostly smaller boutique providers — have avoided blacklisted investments, but some people were unwitting investors in big tobacco companies and makers of banned weapons.

The investigation found three KiwiSaver providers have made investments worth a total of $2.3 million in a trio of United States companies blacklisted by the New Zealand Superannuation fund due to their production of cluster bombs.

The latest KiwiSaver report shows more than $28 billion is invested in KiwiSaver by 2.5 million New Zealanders.

Although the amount invested is a tiny percentage of  total KiwiSaver funds, it is still unacceptable some funds have broken the law.

The KiwiSaver providers should have been more careful to adhere to the legislation specifically forbidding investments in such companies.

Yes, if it’s illegal to invest in a certain type of business it is simply unacceptable.

But it can get tricky because many investments are not simple and easy to identify. The investigation found that Kiwisaver funds from the ANZ and ASB invested in other funds that invested in munitions and tobacco companies.

And it can get more convoluted. The Fisher Fund invests in the ANZ in Australia, so could be seen to be (very) indirectly linked to cluster bomb manufacture.

But the rest of the problem becomes murkier.

It is still legal to smoke in New Zealand and there will be some KiwiSaver investors who are relaxed about their funds being invested in tobacco companies.

In total, New Zealanders were found to have $102 million in tobacco companies, a small proportion of the total amount invested.

I certainly wouldn’t choose to invest in tobacco. But would it matter if the fund I invested in indirectly had a small amount in tobacco? It would make no difference to tobacco production or use if I was minutely and remotely connected or not.

The Government has rightly said it was unlikely to further regulate the KiwiSaver sector and the choice of the fund — and where to draw lines on what was an acceptable investment —  was up to individuals.

This stance has outraged Opposition MPs who want the Government to step in to tell the funds where they can and cannot invest.

Telling New Zealand KiwiSaver providers where to invest is a thin edge of something rather larger.

And that wedge was given a nudge last week. For example Kevin Hague tweeted “No doubt you’re shifting your KiwiSaver account to a company that doesn’t invest in cluster bombs. When you shift, think fossil fuels too”.

Currently, about 50% of New Zealand investors hold shares in Australian companies, including mining companies dealing in fossil fuels and extractive industries such as uranium, a key component of nuclear energy generation.

If all investment ceased in fossil fuel and other extractive industries it would create chaos around the world. While natural energy like wind and solar is great we are still very reliant on oil.

No government has the right to decide whether New Zealanders can invest in liquor or tobacco companies.

It is the individual’s responsibility to ensure they ascertain where their money is invested.

But the Greens seem to want to hammer the ‘ethical investment’ wedge. Julie Anne Genter:

Govt must set the ethical standard on KiwiSaver investments

The Government needs to set higher ethical investment standards for its default KiwiSaver providers, the Green Party said today.

“Profiting from the production of cluster munitions, landmines, and nuclear weapons is immoral, and most Kiwis wouldn’t want their Government directed savings invested anywhere near these companies,” Green Party finance spokesperson Julie Anne Genter said.

“Default KiwiSaver Funds need to be legally invested, at a minimum, and preferably ethically invested, so that New Zealanders have the best choices over where their money goes.

Obviously investments need to be legal. But ‘ethical’ is quite different.

New Zealanders already have the choice where their Kiwisaver funds are invested. As they should.

But I have concerns about Government setting ‘higher ethical standards’ for investments.

An interesting New Yorker article on whether divestment (ethical reinvestment) makes any difference – DOES DIVESTMENT WORK?

And there can be a costly downside as the ODT reports in City pays cost for divesting

Some of the Dunedin City Council’s divestment decisions have cost the city, it was revealed at yesterday’s council finance committee meeting.

The council voted last May to scrap any investments the fund had in the munitions, tobacco, fossil fuel extraction, gambling or pornography industries and to bar future investment in those industries.

The fund had produced $783,000 in profit during the eight months to February 29. However, this was $1.657 million down on the budgeted $2.44 million profit.

Some of the unfavourable variance was because of divestment losses, Mr McKenzie said.

The Dunedin City Council has a strong green lobby, and they succeeding in forcing divestment from companies they considered to be unethical. At a cost.

Kiwisavers should have choice. That could cost them. Apart from ensuring illegal investments are avoided the Government should not dictate what we can invest in.

Tinkering with housing

Housing Minister Nick Smith has announced another tweak to try and help people buying their first home in a market with escalating values.

Government raises KiwiSaver HomeStart caps

The Government is increasing the income and house price caps of the KiwiSaver HomeStart scheme to ensure it meets its objectives of helping New Zealanders buy their first home, Building and Housing Minister Dr Nick Smith says.

“KiwiSaver HomeStart is about helping first home buyers pull together a deposit with a grant of up to $10,000 for an existing house and $20,000 for a new home. We are adjusting the income and house price caps to take into account increases in both since the scheme was announced so as to ensure it achieves its objective of helping middle income earners into a modest home.

“The income caps will increase tomorrow from $80,000 to $85,000 for a single person and from $120,000 to $130,000 for a couple.

“The house price caps are being increased from the existing $350,000, $450,000 and $550,000 depending on region to $400,000, $500,000 and $600,000 for an existing home, and to $450,000, $550,000 and $650,000 for a new home.

“This reflects the $50,000 increase in the national median house price since the scheme began. We are deliberately increasing the cap for new homes by an additional $50,000 to help drive growth in new residential construction.

The aim:

“These changes are about deliberately screwing the scrum in the housing market in favour of first home buyers. These HomeStart and Welcome Home loan changes help first home buyers by giving them a cash grant for a deposit, while the Reserve Bank’s capital LVR changes, effective from 1 September, make it harder for low equity housing investors.

“KiwiSaver HomeStart and the Welcome Home Loan Scheme are just part of the Government’s comprehensive plan to meet New Zealand’s housing challenge. We are reforming New Zealand’s planning system and building laws, investing in record numbers of apprenticeships, supporting councils with infrastructure costs and directly building homes through the Crown land housing programme.

“It is the combination of these measures that over the long term will improve home ownership and ensure New Zealand has the quantity and quality of homes to meet the needs of a growing population.”

The Government has been trying hard to demonstrate that they have ‘a comprehensive plan’ to address the housing non-crisis. It is complex and every tweak may help a little.

But Labour continue to niggle away at a major National vulnerability with the help of  NewstalkZB which introduces KiwiSaver changes will provide plenty of opportunity for home ownership – Nick Smith with:

The Labour party says the National government’s left hand doesn’t know what the right’s doing when it comes to housing policy.

And after a brief description of the announcement:

But Labour’s housing spokesman Phil Twyford said it just tinkers with the margins of the problem, and may even make it worse by making more people borrow more money.

He said the market is on the brink of a crash and the government needs to crack down on market speculators.

He added over the last year only nine per cent of the grants made through the scheme went to Aucklanders – and yet Auckland accounts for a third of the population, and is the region in crisis.

And he said it comes just weeks after Prime Minister John Key pleaded with the Reserve Bank to tighten restrictions on low deposit lenders.

He said the Auckland housing market is on the brink of a crash and it doesn’t make sense for Nick Smith to increase subsidies on low deposit lending.

The tweak to Kiwisaver caps was never going to avert a crash.

Labour: average worker $100k Kiwisaver cut

Andrew Little and the Labour party is claiming that the National Government “will reduce the average worker’s retirement savings by $100,000 over their working life”. They don’t seem to have thought this attack through very well and offer no solutions.

The claimed loss is due to reduced Government handouts for Kiwisaver. What the Government has been doing since Helen Clark and Michael Cullen were in power is tax workers, and then give some workers some of that back in a subsidy that the was tied up until they reached retirement age (currently 65).

New analysis shows National’s constant cuts to KiwiSaver will reduce the average worker’s retirement savings by $100,000 over their working life, Leader of the Opposition Andrew Little says

“The former Labour Government launched KiwiSaver nine years ago today to boost the country’s savings and ensure all New Zealanders have a nest egg in their retirement.

“National has gutted KiwiSaver.

They haven’t taken any money off workers or their Kiwisaver accounts.

Since coming to office it has made five separate cuts to the scheme:

• Taxed employer contributions

• Halved the maximum Member Tax Credit from $1042 to $521

• Halved the Member Tax Credit rate from $1 for every dollar saved to 50c

• Reduced employee/employer contributions from 4 per cent to 3 per cent

• Abolished the kick-start payment

So everyone in Kiwisaver is still getting handouts, they have just been reduced. In part this is because the uptake of Kiwisaver was well ahead of predictions and the cost to the Government was much greater than expected.

“Analysis by the Parliamentary Library (attached) shows a worker on the average wage joining the scheme today will have total contributions of $3500 after their first year. That would have been $6700 without these cuts.

According to that under the original terms of Kiwisaver they would have been given back $3200 in the first year. That would be tied up until their retirement.

“After their first year, the average worker misses out on $2,200 a year in contributions. That adds up to $100,000 the average worker will miss out on if they retire after 45 years’ work. That’s a big slice of their nest egg.

And it amounts to a big slice of taxpayer money when totalled up over all those getting Kiwisaver subsidies.

This press release from Little is only criticism of National, it doesn’t offer any alternative policy from Labour.

There is a post on this at The Standard – National costs you $100,000 from your retirement fund. Wayne comments:

Lets assume the calculations are correct. It is obviously true that if the taxpayer subsidy for each Kiwisaver account is reduced, the final amount saved in each account will be less.

I recall the reason why the changes were made, which was primarily because the uptake rate was much higher then anticipated by Treasury in part due to the size of the taxpayer subsidy. It also meant the cost to the govt finances was much higher then Treasury estimated, and at a time when we were in the middle of the GFC. This meant money being extracted from the economy and put into long term savings at the very time when current consumption was the need, or in other words the requirement was economic stimulus.

So Labour has now done the calculations of the impact of the changes for an account that lasts 49 years, fair enough. But it does raise the obvious question, will Labour restore all the subsidies for KiwiSaver, at a cost to govt expenditure of probably around $500 million, maybe more?

Ropata responded:

Is that what you tell yourself when cheering on the theft of billions from hard working kiwis?

FFS you RWNJs are short sighted idiots and have fucked over NZ time and time again

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10465138

Theft of billions? All workers are taxed. Those who can afford Kiwisaver deductions get handouts from the Government – they get some taxpayer’s money back.

Ropata:

It’s funny how all the Nat Party policies have a short term benefit to the wealthiest 1% and a long term cost to the long suffering NZ taxpayer.

Kiwisaver handouts benefit probably the wealthiest 50% the most. Reducing the subsidies reduces that.

National must answer for their regressive policies that have worsened inequality in New Zealand and thrown thousands into poverty. that is the “real question” IM(NS)HO

Kiwisaver subsidies have nothing to do with the poverty issue, except that money that could potentially be spent on the poorest is benefiting middle and upper income earners – and Little and Ropata are complaining that this has been reduced!

Andrew Little:

“Figures released this week show growing inequality under this Government. National’s KiwSaver cuts are making inequality worse by making it harder for middle New Zealand to save.”

Kiwisaver does nothing to address the poorest – including those who are already retired and ineligible, those not working and ineligible, and the poorest workers who can’t afford to tie some of their earnings up for decades in Kiwisaver.

This is a poorly thought through attack by Little that offers no solutions.

 

 

More confusion between Treasury and Inland Revenue

In his Breach of Privilege complaint to be laid against PM Grant Robertson has claimed Key has misled Parliament, saying “Inland Revenue told John Key” and “Inland Revenue actually said” – but there’s no evidence of what Inland Revenue told Key despite confusion connections being made by Robertson and The Standard.

Robertson’s press release linked to a Treasury report:

RobertsonBreachofPrivilege

As I show in Breach of privilege complaint against Key this doesn’t show any specific Inland Revenue statement, it just says that Treasury consulted with IRD for their report.

However Greg Presland at The Standard quotes in Another #Keyfib about Kiwisaver:

Yesterday’s Treasury dump of papers included the advice from the IRD to the Government about Kiwisaver.  The IRD paper included this advice on the likely effects to Kiwisaver providers:

Lower numbers of KiwiSaver members (particularly among the self-employed and children) and therefore lower revenues from fees and/or a greater number of dormant accounts (if affected individuals stop contributing)”.

Can anyone reconcile these statements?  I have tried to but I cannot stretch the language sufficiently.

That’s word for word the same as from the Treasury statement, but Presland links to an Inland Revenue publication. That’s a virtual replication of the Treasury Impact Statement but can give the impression it’s a statement from IRD.

I say “virtual replication” but it’s not identical. I haven’t checked right through but the first paragraphs differ:

Treasury version:

1. This regulatory impact statement has been prepared by the Treasury in close consultation with Inland Revenue.

IRD version:

1. This regulatory impact statement has been prepared by the Treasury in consultation with Inland Revenue.

But regardless of how close the consultation was there is no clear statement directly from Inland Revenue.

Roberston has claimed:

“Budget documents released yesterday show the Inland Revenue told John Key the exact opposite of what he told Parliament.“Inland Revenue actually said the impact of scrapping the kickstart on KiwiSaver providers would be a ‘lower numbers of KiwiSaver members (particularly among the self-employed and children)’.

The Treasury statement does not show what Inland Revenue told Key, nor does it show that they actually said anything at all to him.

Breach of privilege complaint against Key

Grant Robertson has made a formal breach of privilege complaint against John Key for allegedly misleading the house a week after the budget in May.

It appears that both Robertson and Key may have made mistakes.

Breach of Privilege complaint to be laid against PM

The Labour Party will today lodge a breach of privilege complaint against the Prime Minister for misleading Parliament over advice he received about scrapping the KiwiSaver kickstart.

Labour’s Finance spokesperson Grant Robertson says John Key misled the House on May 26 during the following  exchange:

Tuesday, 26 May 2015

Mr Speaker took the Chair at 2 p.m.

Prayers.

Questions to Ministers

Prime Minister—Statements

1. METIRIA TUREI (Co-Leader—Green) to the Prime Minister : Does he stand by all his statements?

Rt Hon JOHN KEY (Prime Minister): Yes.

Metiria Turei : Does he stand by his reported statement that no one had been disadvantaged by the move to scrap the $1,000 KiwiSaver kick-start payment?

Rt Hon JOHN KEY : The member might want to table the source for that because I cannot recall it.

Metiria Turei : Has the Prime Minister seen that New Zealand ranks 22nd out of 24 countries in the OECD for savings, and will his removal of the $1,000 KiwiSaver kick-start contribution make this poor savings record better or worse?

Rt Hon JOHN KEY : Firstly, savings records have improved under this Government. Secondly, there are multiple ways of measuring those things. And, thirdly, the removal of the $1,000 kick-start contribution will not make a blind bit of difference to the number of people who join KiwiSaver.

Metiria Turei : What evidence does the Prime Minister have that the sign-up rates for KiwiSaver will not be affected?

Rt Hon JOHN KEY : That is the formal advice from the Inland Revenue Department, and it is supported by the view that the people who are joining KiwiSaver are essentially doing so because it is now well organised within the workplace. Some of the big scheme providers are extremely well organised. We have got about 15,000 to 20,000 people joining in a month. I would be very, very surprised if it changes at all as a result of this.

“Budget documents released yesterday show the Inland Revenue told John Key the exact opposite of what he told Parliament.“Inland Revenue actually said the impact of scrapping the kickstart on KiwiSaver providers would be a ‘lower numbers of KiwiSaver members (particularly among the self-employed and children)’.

“Instead of reflecting this advice, the Prime Minister simply made a blanket statement claiming the IRD backed his position.

“The Prime Minister has a fundamental requirement to tell the truth to Parliament. Blatantly misrepresenting advice he receives brings the integrity of Parliament into question.

“John Key must lead by example by having the highest standards of integrity. If he can’t be trusted to be truthful in Parliament, how can the public have confidence in any of his statements or those of his ministers?”

The Regulatory Impact Statement was “prepared by the Treasury in close consultation with Inland Revenue”.

KiwisaverRegulatoryImpactStatement

The section on impacts:

KiwisaverRegulatoryImpacts

(44. a.) is what Robertson is referring to. He claims: “Inland Revenue actually said the impact of scrapping the kickstart on KiwiSaver providers would be a ‘lower numbers of KiwiSaver members (particularly among the self-employed and children)’.

I can’t see anything that shows what “Inland Revenue actually said”, just that the statement was prepared “in close consultation” with Inland Revenue.

The Regulatory Impact Statement was signed by James Beard (Manager, Financial markets) from The Treasury.

It looks to me that Key could legitimately respond that this doesn’t prove Robertson’s claim against him.

Key claimed “That is the formal advice from the Inland Revenue Department” – Robertson doesn’t appear to have proved that wrong.

I would be surprised if Inland Revenue formally advised Key that “the sign-up rates for KiwiSaver will not be affected”.

I think both Robertson (now) and Key (in Parliament) have made loose claims.

I wouldn’t be surprised to see Key ‘clarify’ by saying that he meant that the sign up rate of the ‘target population’ wouldn’t be affected – that’s employees who are automatically enrolled and who have to de-enrol if they don’t want to be in KiwiSaver.

The self employed and children seen as ‘leakage’ enrolments outside the ‘target population’.

Overall Treasury

They recommended removing the Kickstart to achieve “significant fiscal savings” from a “costly and poorly targeted savings scheme”…

KiwisaverRegulatoryExecSummary

…but also said it would “marginally (at best)” improve the target effectiveness:

KiwisaverRegulatoryTargeteffectiveness

See the related post More confusion between Treasury and Inland Revenue.

Labour’s big Kiwisaver challenge

Labour have a very big challenge to overcome if they want to successfully sell their compulsory Kiwisaver policy proposal. A comment by Disraeli Gladstone at The Standard illustrates a potential problem.

I wanted to bring up a potential situation which is probably reasonably common across the country:

A single parent with multiple kids, potentially three or four. Maybe the parent is a widow, maybe they receive some support from the other parent, maybe the other parent fled the country. They earn around $50,000. That’s not bad. It’s under the median income but they’re definitely not counted as a person on low income. They even get a bit of Working for Families.

However, they’re a renter. They also have a car they’re still paying off: nothing flash, something to get by which wouldn’t also have to go into repairs often. They have various school fees and uniforms and books and trips to pay for. Electricity bills are always a bit of a concern.

Now, the parent is doing okay. They want the best for their kids. So they budget accordingly. Healthy food over cheap rubbish, so they don’t have any silly gym membership or anything like that. They want their kids to have books and internet so maybe they don’t get Sky TV.

It’s a nice life without being affluent. It’s also rather tediously poised. They’ll be some weeks when the parent is scrambling for every cent: unexpected school fee, kid’s shoes have broken, etc. It’s comfortable without ever being safe.

One of the things they have to consider is Kiwisaver. They decide against it. They can’t afford it yet. Once the kids are older, they’ll open one up.

When I say potential situation, I am largely writing about a good friend of mine.

Suddenly, under Labour’s new policy, everything changes. They have to contribute to Kiwisaver. That’s a certain percentage of their income gone. They can’t withstand the unexpected expenses now, school fees and new uniforms are dreaded. And this is someone on a reasonable salary. They’re nearly going under.

Furthermore, the rate is variable, how is that person meant to budget? A responsible way of life of budgeting essentials and nice-to-haves is suddenly thrown away with the risk that soon their Kiwisaver contributions might rise. Maybe the kids don’t get their books, maybe they have to downsize the car and cringe with every WOF, maybe they have to downsize a house and have multiple children in each room in a more dangerous part of town.

For someone earning $50,000 would have $4,500 per year ($86.54 per week)  contribution with Labour’s compulsory Kiwisaver and increase to 9% total contribution (that’s a total of employee plus employer contribution).

Now Labour just needs to provide a really good policy to make sure low-income and renters don’t get punished by this. (geoff)

That’s Labour’s biggest challenge.

At 9% (Labour’s suggested Kiwisaver rate):
$30,000 is $2,700
$40,000 is $3,600
$50,000 is $4,500

How can they “not punish” people earning those amounts? If they have children their effective PAYE less WFF credit means they are pay little or no income tax.

And how can they ‘not punish’ them without being unfair to those who already contribute to Kiwisaver?

David Parker has talked about increasing the minimum wage and using a living wage but these are substantial compulsory contributions, and it will be very difficult to be fair to all.

What about a solo parent who works 30 hours a week on $25 per hour ($39,000 pa with $3,510 Kiwisaver)? They won’t be affected by any increase in the minimum wage and are unlikely to be affected by any living wage.

It will be difficult for Labour to explain the possible benefits some time in the future of some possible effects on Official Cash Rates and exchange rates – especially when a lowered exchange rate will increase the cost of living for many people due to more expensive imports, and most people won’t noticed anything from improved export prices.

It could be even more difficult for Labour to explain to and ‘not punish’ low income earners and people who aren’t yet on Kiwisaver.

Low and average earners would potentially see $50-$100 per week less in their pay packet.

Making Kiwisaver compulsory, an up front $50-$100 per week less in the hand and rising petrol prices versus tweaks that might affect the OCR, Forex and Fonterra payouts. Selling the benefits of their policy will be a big challenge for Labour.

Labour’s compulsory Kiwisaver exemptions

Labour have indicated they may exempt some people from compulsory Kiwisaver.

From David Parker’s speech:

Distributional and hardship effects for the lower paid would need to be considered, but could be accommodated in the detail of how the variable rate was applied.

Labour would ensure that everyone was treated fairly.

From the detailed policy document:

5.12 The New Zealand Labour Party is proposing that the existing KiwiSaver scheme become a universal work place savings scheme. This would be achieved by making KiwiSaver compulsory, with exceptions limited to those which apply to the Australian scheme.

So there would be some exceptions similar to Australia’s Superannuation Guarantee

5. Exemptions
 
An employer is not required to provide superannuation contributions to the following categories of employees:
  • employees receiving a salary/wage of less than $450 (before tax) in a calendar month
  • employees under 18 years of age working less than 30 hours per week
  • non-resident employees paid for work done outside Australia
  • resident employees paid by non-resident employers for work done outside Australia
  • employees receiving salary and wages under the Community Development Employment Program
  • some foreign executives holding certain visas or entry permits under the under the Migration (1993) Regulations
  • employees earning above the maximum super contribution base – super is not paid on the portion of income above the maximum super contribution base
  • employees paid to do work of a domestic or private nature for not more than 30 hours a week, (eg part-time nanny or housekeeper)
  • members of the army, navy or air force reserve for work carried out in that role 
  • eligible employees who made a choice, prior to the abolition of reasonable benefit limits, to not receive employer super contributions because their accumulated super benefits exceeded the pension reasonable benefit limit
  • employees temporarily working in Australia who are covered by a bilateral super agreement – employers are required to keep a copy of the employee’s certificate of coverage to verify the exemption.
  • non-resident employers are not required to provide SG for resident employees for work they do outside Australia.
Note: employees aged 75 years and over used to be exempted from the requirement, however from 1 July 2013 there is no longer an age threshold.

I’ve seen somewhere that they would also tighten up on payment holidays and withdrawals for extreme hardship.

As a comparison here are the Australian rates:

Percentage increase to minimum contribution
In the 2010 Federal Budget, the Treasurer announced important changes to the superannuation guarantee scheme.
  • From 1 July 2013, there is no longer be an age limit on employees for whom employers have SG obligations.
  • The minimum SG contribution will increase from 9% to 12%, phasing in from 1 July 2013. The minimum contributions required to comply with the SG law will be:
Year commencing Minimum SG contribution
1 July 2013 9.25%
1 July 2014 9.5%
1 July 2015 10%
1 July 2016 10.5%
1 July 2017 11%
1 July 2018 11.5%
1 July 2019 12%
Legislation