Quasi-compulsion to open KiwiSaver floodgates

New Zealand took a step closer to compulsory superannuation last week with a budget measure that is expected to significantly improve take-up of the country’s impending workplace savings scheme KiwiSaver.

In the May 17 budget Michael Cullen, New Zealand’s Finance Minister, introduced compulsory matching employer contributions for KiwiSaver as well as a raft of tax incentives and fee subsidies for employees. The move radically alters the opt-out KiwiSaver scheme, which is due to launch on July 1 this year, and has roused a funds management industry which had been cautiously pessimistic about the workplace savings plan. Vance Arkinstall, head of the Investment Savings and Insurance Association (ISI) – New Zealand’s version of IFSA, said the budget announcements “will ensure the success of KiwiSaver”. “There is now no doubt that the proposition offered by KiwiSaver is so attractive that virtually all New Zealanders must consider joining,” Arkinstall said in a statement. Prior to the budget changes the New Zealand government had expected only 25 per cent of employees would be enrolled in KiwiSaver products within five years but that proportion is projected to double. Under the new KiwiSaver rules employers will have to match employee contributions up to 4 per cent of gross income. The employer contribution will be phased in over four years starting at 1 per cent of gross income in the 2008/9 tax year. As well the government will provide tax credits to both employers and employees up to a maximum of $40 per week total. At the same time Cullen lowered the New Zealand company tax rate from 33 per cent to 30 per cent, bringing it into line with Australia. While more fund managers are expected to offer products as a result of the latest changes it is understood the New Zealand government actuary has excluded trail commissions from any KiwiSaver funds.