Don't quit KiwiSaver after changes - Govt

Workers wanting to quit KiwiSaver after changes flagged by the Government are being told to take a contributions holiday instead if it becomes unaffordable.

Under changes flagged yesterday workers and employers will have to increase their minimum contributions to KiwiSaver to match a reduction in the Government's $20-a-week members' tax cut.

Prime Minister John Key said Government contributions currently made up half of all savings going into KiwiSaver and that was not sustainable.

The cuts won't take place till after the election and only once the economy is back on a sound footing.

Details will be unveiled in next week's Budget but there is speculation the $20-a-week tax credit will be reduced by half, with the minimum worker and employer contributions rising about half a percent to compensate.

Labour leader Phil Goff slammed the changes as an attack on low and middle income workers, and said the Government should have targeted cuts at high income earners who got most from last year's tax cuts.

But Goff indicated Labour was unlikely to reverse the cuts.

Reaction among workers appeared to be mixed - and some immediately wanted to know if they would be able to withdraw from the scheme now that the terms had changed.

But Key signalled yesterday that there would be no opt-out clause, and insisted the increases were affordable for individuals and business.

"We can't afford a scheme where half the contributions to KiwiSaver accounts come from the Government. For most people in the scheme it will be a minor adjustment, it's not a significant impact on them.

"If people really couldn't afford to pay the increase, then they have the opportunity to take a contributions holiday [of up to] five years."

Under the current KiwiSaver rules there's no limit to the number of times you can take a contributions holiday and you can renew it at any time.

Actuary Jonathan Eriksen told National Radio today the changes could prompt people to consider abandoning the scheme.

"[Key] seems to overlook the fact that New Zealanders wouldn't invest in KiwiSaver without the Government incentive - it is a very risky and dangerous move to reduce the incentives unless it's extremely carefully handled."

Mr Key said the $1000 kick-start would remain because surveys had shown that was one of the most popular aspects of the scheme. Total contributions would remain the same "'or larger" than they were today, even after the $20-a-week Government tax credit was reduced.

The Government currently pays about $700 million a year in member tax credits and the changes flagged could reduce its borrowing by about $4 billion over the next decade.

KiwiSaver has been a runaway success since its introduction under Labour and set to be worth about $25b by 2015 and almost $60b within the next 10 years. About 1.7 million workers have signed up to the scheme.