Cullen 'dreaming' over Kiwisaver takeup, says Key

John Key

The National Party says Finance Minister Michael Cullen is dreaming if he thinks 25 per cent of workers will sign up to the new Kiwisaver scheme.

But the response from other groups to the new savings scheme has been generally positive.

Dr Cullen yesterday unveiled legislation setting up one of his centrepiece policies intended to encourage retirement savings and assist low and middle income earners to buy their first home.

Announced in last year's budget, the Kiwisaver scheme is meant to be up and running by April 2007.

Dr Cullen said he hoped for the support of New Zealand First and the Greens in getting the scheme through Parliament.

National's finance spokesman, John Key, has been publicly cool towards Kiwisaver, but Dr Cullen said he believed National would come around.

He was forecasting that 25 per cent of the workforce or around 350,000 people would be in a Kiwisaver scheme within five years.

This would cost the Government $700 million over the period.

Dr Cullen said that take-up forecast was ambitious and if it was achieved it would mean National would be politically forced to back the scheme, as it now supported the New Zealand Superannuation Fund.

But Mr Key said Dr Cullen was "dreaming" with his prediction that 25 per cent of the workforce would sign up.

"The state sector scheme has only a 50 per cent take-up rate and that matches contributions dollar for dollar," Mr Key said.

"Kiwisaver offers nothing of the sort," he said.

National supported greater savings in principle but the Kiwisaver scheme was a "glorified Christmas Club".

"You can still move your money in and out of your account. Overseas experience has shown that many accounts in similar schemes lay dormant," Mr Key said.

However, unions and a tax expert agreed the scheme was a positive step for workers, but added that Dr Cullen could have gone further in ensuring that employers made contributions.

Council of Trade Unions economist Peter Conway said the savings schemes set to take effect in April 2007 would bring greater security for workers as they planned for their retirement.

The CTU hoped that employers would co-operate with the roll out and that employers would take up the option of making matching contributions.

The country's largest union, the Engineering Printing and Manufacturing Union, said that the Kiwisaver retirement savings scheme was a good step for workers, but that employers should be making contributions.

Ernst & Young tax director Jo Doolan said Dr Cullen was to be congratulated for his initiative.

"However, I do question why it is not compulsory?"

Ms Doolan pointed to the Australian model, which is compulsory and had employer contributions, as the way New Zealand should go to improve savings rates.

Employers and Manufacturers Association chief executive Alasdair Thompson said employers in general were supportive of Kiwisaver although smaller businesses were unhappy with its added compliance costs.

Investment Savings and Insurance Association chief executive Vance Arkinstall hoped Kiwisaver would become a major driver to change savings habits although there were some doubts over whether the Kiwisaver approach would be "sufficiently compelling" to many New Zealanders.

He had doubts about the allowance for a general contribution holiday after 1 year and whether the 4 per cent minimum contribution from employees was too high.

- NZPA