KEY POINTS:
What is kiwisaver?
KiwiSaver is a voluntary superannuation savings scheme which will now require compulsory employer contributions from next April.
You can join KiwiSaver by voluntarily saving either 4 per cent or 8 per cent of your income from July 1 this year.
On top of your
own savings, your employer will have to pay a further 1 per cent above your wages into your KiwiSaver account from next April, 2 per cent from April 2009, 3 per cent from April 2010 and 4 per cent from April 2011.
The Government will also pay in $1000 when you open a KiwiSaver account.
In general you have to keep your savings in KiwiSaver either for five years or until you turn 65, whichever is later. This means that if you start saving at 64, you won't get access until you're 69.
However, if you are buying your first home you can take out all your savings (except the Government's $1000 "kick-start") after three years or more to put into a deposit for a home.
If your income is below an as-yet-unknown limit, and if you're buying a first home costing below another as-yet-unknown limit, the Government will give you a further $1000 for every year you've been contributing to KiwiSaver up to $5000. If you and your partner have both been contributing to KiwiSaver for five years, that's $10,000 between you.
What changes has the budget made?
1. KiwiSaver has been transformed from a purely voluntary scheme to a hybrid which is now voluntary for employees and the self-employed but compulsory for employers from next April, once an employee opts in. You will be able to take out both your own savings and your employer's contributions after three years to buy your first home.
2. You will now get a new tax credit from the Government from July this year matching your contributions up to $20 a week ($1040 a year). If you keep earning at least $500 a week, this is a $1040 gift from the Government which gets credited to your KiwiSaver account every year until you retire.
3. However, you will not be able to take out your accumulated tax credits to buy your first home. The only way you can get your tax credits out before age 65 is if you fall seriously ill and have to stop working.
4. Employers will also get a tax credit from next April paying the full cost of their KiwiSaver contributions up to $1040 a year for each employee. This is in addition to an already-announced KiwiSaver exemption from the tax that employers currently pay on employee "perks" such as superannuation.
5. A provision in the original scheme where employees and employers could split the required minimum 4 per cent contribution (eg 2 per cent each) will be withdrawn from next April, when employer contributions become compulsory. The minimum employee contribution will become 4 per cent.
What are the limits on income and house prices for getting the $5000/$10,000 government gift to first-home buyers?
A spokesman for Finance Minister Michael Cullen says these have not been finalised, but the house price caps will vary by region.
Council of Trade Unions economist Peter Conway says: "If you look at the way they're targeting this, the [regional] median price, not necessarily the average price, would be a starting point. You can't get it [the $5000 gift] if you're buying a million-dollar mansion," he says.
Will low-income earners be able to save?
Only if they cut spending on something else such as food or clothes.
The Budget does not give low-income earners any extra cash to save with, but gives them a huge incentive to cut their basic living costs somehow so they can get the extra $20 a week from the Government, superannuation contributions from their bosses and $5000 or $10,000 towards their first home after five years.
Will people already in employer-sponsored super schemes get any benefit from this?
Only if their employer scheme becomes compliant with KiwiSaver rules, including locking savings in until age 65 (apart from buying a first house). At present, most schemes let staff take their money out when they change jobs.
AMP is reported as saying that only 20 per cent of the employer schemes it manages were modifying their rules to get exemptions from KiwiSaver.
Association of Super Funds chief executive Bruce Kerr says the new tax credits will now entice many more schemes to create KiwiSaver-compliant options.
For example, a scheme where the employer and employee each pay 5 per cent might be changed to bring 4 per cent on both sides under KiwiSaver for savings from April onwards, locking those savings in to age 65, but letting employees who leave the company take out all their savings up till April 2008.
What should people in existing schemes do about it?
If you're in an existing scheme, Mr Kerr advises you to pressure your employer to offer a KiwiSaver-compliant option so you can get the Government benefits.
