Well ... there’s a bit of guesswork at play.
KiwiSaver tax cut ruled out
One way the Government could help KiwiSaver members save more is by cutting the tax applied to employer contributions.
This would see employees receive the full contribution their employers make to their KiwiSaver accounts, rather than a lesser amount that’s had tax sliced out of it.
However, Revenue Minister Simon Watts on Wednesday told the Herald the Government wouldn’t make that change.
“I’m happy with the settings in regard to that. It’s not an area that we’re currently reviewing,” Watts said.
The Employer Superannuation Contribution Tax is a nice little revenue earner for the Government, topping up its coffers by a hefty $2 billion a year.
However, it means that someone with an annual salary of $100,000 whose employer contributes $3000 to their KiwiSaver account actually receives only $2010 a year.
Because the $3000 is taxed at 33%, the “3%” employer contribution is in effect only worth 2%.
Employer contributions are taxed at between 10.5% and 39%, depending on an employee’s salary/wage.
Means-testing government contribution not ruled out
Another way the Government could lift KiwiSaver balances is by upping the $521 payment it makes to the accounts of members who contribute more than $1042 a year.
However, Willis has hinted she might means-test the sweetener, which costs the Government about $1b a year.
This could see her cut the payment to higher-income earners who earn more than $180,000 a year, for example.
The question will be whether she redirects any of the savings towards lower-income earners, or the self-employed, who don’t receive employer contributions.
The Government could, of course, come up with new ways of using its money to bolster KiwiSaver balances.
But it doesn’t look like it will use existing channels to pump more money into the scheme.
Rightly or wrongly, that leaves it with few options but to compel employees and/or employers to contribute more.
Will everyone have to contribute more?
The big kahuna would be lifting the minimum contribution rate from 3% to, say, 5% over time.
If Willis was worried about deterring people grappling with the cost of living from investing in KiwiSaver altogether, she could leave the minimum rate at 3%, but lift the default rate.
There are several other changes the Government could make to support pockets of people less well served by KiwiSaver.
For example, the Retirement Commission believes employers should be required to make contributions to employees over 65 and under 18.
It also reckons employers could be made to match the contributions of members who contribute more than the 3% minimum, and suggests the Government considers requiring employers to contribute to all employees who are KiwiSaver members, even if they aren’t currently contributing.
There is clearly room to improve the KiwiSaver scheme.
The pinch is, the Government isn’t poised to pay more towards our retirements. Budget day might come with a stark reminder: that it is on us.
Jenee Tibshraeny is the Herald‘s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
