Cullen calls for compulsory KiwiSaver, higher rates

By Brian Fallow

Former finance minister and KiwiSaver architect Michael Cullen makes his valedictory speech as he prepares to leave Parliament in 2009. Photo / NZPA
Former finance minister and KiwiSaver architect Michael Cullen makes his valedictory speech as he prepares to leave Parliament in 2009. Photo / NZPA

The architect of KiwiSaver, Sir Michael Cullen, has called for it to be made compulsory, with higher contribution rates, and taxed at maturity to bring down the cost of New Zealand Superannuation to future taxpayers.

In a speech to a conference in Wellington yesterday on long-term fiscal challenges, he said that as the number of people enrolled in KiwiSaver was already far higher than forecast "it is not a long step to make the scheme compulsory ... and over time gear it up to a level far closer to that planned in Australia". That scheme is funded by a payroll tax of 9 per cent of income, soon to rise to 12 per cent.

Cullen has had the Treasury model scenarios where KiwiSaver becomes compulsory from July 2016, with everyone signed up as they turn 18 and the opt-out provisions on auto-enrolment removed.

All remaining adults would be enrolled in 2020. Contribution rates would be lifted back to 4 per cent from employees and 4 per cent from employers, with the latter rising 0.5 per cent a year until reaching either 6 or 8 per cent.

Turning to how the costs to taxpayers of New Zealand Super might be reduced, while ensuring the retired continue to enjoy a guaranteed retirement income at least equivalent to today's level in terms of relativity to wages, Cullen had the Treasury model a one-off tax of either 10 or 15 per cent of the amount accumulated in a person's KiwiSaver account at age 65.

The proceeds would be put into the New Zealand Superannuation Fund, also set up by Cullen, to partially defray the cost of pensions to future taxpayers.

The tax would not be retrospective, that is, it would apply only to accumulations starting with the introduction of the compulsory scheme.

The various combinations - 6 or 8 per cent employer contributions with either a 10 or 15 per cent tax - all arrest the otherwise relentless growth in the cost of super by the 2030s. They reduce the cost by around 2 per cent of gross domestic product in 50 years' time.

An alternative, more politically problematic but delivering greater fiscal savings, would also make KiwiSaver compulsory and have the same contribution parameters. Instead of a tax upon withdrawal, it would require that half the savings be invested in an annuity.

If that yielded less than the guaranteed retirement income it would be topped up by the taxpayer.

- NZ Herald

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