KiwiSaver Budget warning

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The government is targeting cuts to KiwiSaver incentives and the KiwiSaver first home deposit subsidy from Housing NZ in the May 19 budget, Workplace Savings NZ has warned.

Chairman David Ireland said the industry considered it highly likely that the incentives were at the top of the government's hit list for Budget 2011.

The government should resist any temptation to cut KiwiSaver benefits, said Ireland, who heads up the industry body representing employer-run pension schemes.

"Both savers and the industry need to have confidence in the sustainability of current and future savings initiatives if that savings success story is to continue," Ireland said.

He noted the government had not consulted with the industry in the wake of the release of the Savings Working Group recommendations.

"We hope the lack of consultation is an indicator the government will stick with its existing policy, and not make a short term decision, in light of current economic pressures, that will have negative long term concequences on workplace savings," he said.

"All the talk about the need to increase the level of New Zealand's savings to address the pressures caused by an ageing population would count for nothing if the lifeblood of KiwiSaver is cut off."

'Planning for what might happen'

Ireland, who is a partner at Kensington Swann, said the group's worries were based on what had appeared in the media

"It's more planning for what might happen, so that strategies are worked through by the providers, so come May 20 [the day after the Budget] there's a flurry of concerns from the public that actually we have thought about and identified," Ireland said.

"But there's no specific inkling or specific inside knowledge from the Beehive other than feeding off what the Minister has said re: 'all options [for Kiwisaver changes are] on the table, and they're looking at things very hard', "he said.

Home subsidy?

There were a couple of industry participants who felt that the Housing New Zealand first home deposit subsidy was more likely than other incentives to be cut.

"From the structure or the objective [of the subsidy] we certainly hope not [that it would be cut]. Whilst the first home withdrawal is a bit of a challenge with Kiwisaver as it is, we've only just got to the point where people are starting to be able to withdraw funds for that," Ireland said.

"You have a lot of children, in particular, being put into Kiwisaver with this objective in mind, who will suddenly have the reasons for them joining suddenly taken away from them, if that were to occur," he said.

"Once you've been a Kiwisaver member for three years you are able to apply for that subsidy if you meet the criteria, and you are looking to buy your first home.

What happens is you can withdraw your Kiwisaver savings and you can also get, on top of that, a subsidy from Housing New Zealand, so that when you come to settle your home [purchase], you can add both those two [for the deposit]."

The possible subsidy went up to NZ$5,000 - NZ$1,000 per year a person had been in the scheme.

"It's a reasonable sum, and it's something you'd bend over to pick up in the street," Ireland said.

"But it's just that token, that extra bit. In particular they are focussing on people looking to buy cheaper houses - there's a cap on the value of the house that you might be buying in order to get the subsidy," he said.

"They're targeting people where it might make a difference to the amount of their own contribution to the home, compared the their mortgage funding, it's to supplement that."

Reasonable carrot

There were people in Kiwisaver who had joined for the first home buying help the scheme gave them, including the Housing New Zealand subsidy.

It did not cost government anything by allowing people to use their own funds to put toward a deposit for their first home, so the group did not see that particular incentive being affected.

"Yes, they would still be able to withdraw their funds to buy, but it's going to be a longer term plan, possibly, for them to get to their first home, especially now given the timing," Ireland said.

The subsidy was a "reasonable carrot, in particular for the younger KiwiSavers, to get people into it early. This is a good way to save for your first home," he said.

Meanwhile, the bigger issue for New Zealand's overall savings perspective was if incentives to join Kiwisaver were significantly eaten in to, then people may stop saving through Kiwisaver.

"Because why would you lock your money away until age 65-plus, if you're not given some sort of incentive to do so, other than 'it's a good thing to do'?"

"If you remove too much of the goodies that support Kiwisaver, then [people will think] 'we may as well invest somewhere where we can get easy access to the money, where we don't have to go through this process, say, of significant financial hardship withdrawal - we can get the money when we need it'," Ireland said.

"The only ones left in Kiwisaver would be the ones who want to save themself from themselves, removing the temptation," he said.

"We do recognise the government does have to save money somewhere, and so maybe some of the incentives could be tinkered with at the margins."

The member tax credit was a big incentive.

"That's the one that is probably the biggest on-going cost. It's also the one that probably is also one of the big sellers for KiwiSaver, and the key thing that keeps people locked into the savings habit," Ireland said.

"For people who aren't salary earners, aren't in PAYE - self employed etc - you don't get the other tax relief that applies on employer contributions, so it's now the only on-going subsidy incentive that you get for your contributions," he said.

"We think getting people locked into that habit of regularly saving is a really good thing, and the member tax credit is a real push/inducement for people to do that."

- INTEREST.CO.NZ