KiwiSaver still a good bet for retirement

JENNI MCMANUS
Last updated 05:00 20/05/2011

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There are still "good incentives"' for people to be in KiwiSaver, despite the Government's subsidy to members being slashed by 50 per cent in two years' time and a rise in employer and worker contributions from 2 per cent to 3 per cent.

Savings industry players say they are relieved the Government has retained the fundamentals of KiwiSaver but are disappointed it has chosen to axe the tax-free status of employer contributions, which they describe as a "significant" move.

Time will tell whether KiwiSaver members opt for contributions holidays rather than stumping up the extra 1 per cent after April 2013, they say.

David Ireland, the chairman of the Workplace Savings Group and a partner at law firm Kensington Swan, also pointed to an apparent disconnect between the Government's focus on the need for people to save for their retirements and yesterday's moves to shift the responsibility for KiwiSaver on to the private sector.

"It's hard to see it as anything other than a disconnect," Mr Ireland said. "There is still a benefit to being in KiwiSaver. People still have to save for their retirements. It is disappointing that the Government is removing the tax relief on employer contributions and lumping the responsibility on to the private sector. But there are still good incentives and KiwiSaver is still meaningful."

David Kneebone, executive director at the Retirement Commission, said it was still an attractive scheme and fears that it would be substantially changed had been assuaged.

Members will still receive similar amounts at age 65 to what they would under the current rules although the mix of contributions will change.

Martin Lewington, head of default KiwiSaver provider Mercer, describes the changes as "relatively small steps in the right direction".

Six per cent total contribution from employers and members would not be enough to keep New Zealanders "in the style we'd like to be in during our retirement years", he said.

Milton Jennings, chief executive of non-default KiwiSaver provider Fidelity, pointed to the 9 per cent Australians compulsorily contribute to their retirement schemes, with the prospect of this being raised to 12 per cent and beyond.

Budget reaction from big accounting firms was mixed.

Jo Doolan, a tax partner at Ernst & Young, described it as a "make or break" Budget, based on very optimistic forecasts of 4 per cent growth next year.

"To achieve these, New Zealand will have to actively engage in improving their profitability well beyond our current focus of relying on growth from the Christchurch recovery and the Rugby World Cup," she said. "Otherwise there will be no traction achieved in converting these Budget aspirations into reality."

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Thomas Pippos, managing tax partner at Deloitte, said the Budget mirrored the "new normal" in global trends – relatively "boring fiscal conservatism" – but that's not a bad thing.

He also warned of "a little devil in the detail" around future policy reform targeted at mixed-use assets.

- BusinessDay.co.nz

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