Compulsory KiwiSaver exempts 300,000

Labour Party Finance spokes person David Parker.

More than 300,000 business owners and self-employed people would be exempted from Labour's new policy to make workers pay more into KiwiSaver to dampen inflation in boom times.

Labour finance spokesman David Parker confirmed yesterday that his variable compulsory saving proposal would apply only to employee contributions to KiwiSaver - not to employer contributions, and not to self-employed people and employers who choose to pay voluntarily into their own KiwiSaver accounts.

Auckland University Retirement Policy and Research Centre co-director Dr Susan St John said the proposal would be "a very regressive way to get those extra savings".

"They are using KiwiSaver as a tool for macroeconomic management when actually the purpose of KiwiSaver is to provide a savings vehicle for low and middle-income people who otherwise wouldn't have been able to have a supplement to their NZ Super," she said.

Based on last year's Census, KiwiSaver would be compulsory for just over 1.5 million employees, but not for 236,000 self-employed people and 130,000 employers.

Last June, only 53 per cent of New Zealanders under 65 were in KiwiSaver. Many people not in paid work, such as women at home with children and the sick and disabled, cannot afford to pay into it, and Mr Parker said a Labour Government could not afford to pay contributions for them.

Labour would raise the minimum KiwiSaver contributions from the current 3 per cent from employees and 3 per cent from employers to a total of 9 per cent.

At the last election it proposed 2 per cent from employees and 7 per cent from employers, but Mr Parker said he was now "open-minded" on the split.

"People seem to be happy with 3 plus 3, so 1.5 extra each might be easier," he said.

But Whale Oil blogger Cameron Slater wrote yesterday that saving 9 per cent of current income would be irrational for even fulltime young earners on the minimum wage because, after including universal NZ Super, they would end up with higher incomes in retirement than they earned now.

Mr Parker said Labour would exempt very low earners from compulsory KiwiSaver but the threshold would be set well below the fulltime minimum wage.

"Someone working small, irregular, part-time hours probably wouldn't be caught, but someone working 20 hours a week probably would be."

He said compulsory retirement saving would lift national savings and productivity enough to make everyone better off in the long term, as it had in Australia.

Compulsion would be phased in, probably starting with 1 per cent each in the first year and rising to 3 per cent each in the third year.