The Government did a last minute U-turn on the design of the Kiwisaver scheme, against the advice of officials, unions and others, Cabinet papers released today show.
In August, Finance Minister Michael Cullen revealed the final shape of the Government's workplace retirement savings scheme.
Amongst the changes were allowing homeowners
to divert part of their contribution into paying off their mortgage if they wished, even though companies providing the Kiwisaver scheme did not have to offer that option.
This brought criticism from National MPs that this would dilute the purpose of Kiwisaver -- to build retirement savings.
Papers gained by National MP Craig Foss under the Official Information Act showed that others -- including Cabinet -- shared similar concerns.
The papers revealed that in February this year Cabinet acting on advice agreed mortgage diversion was unworkable and too complex.
One Cabinet decision minute said it was agreed in "light of feedback from unions, retirement groups and mortgage providers, Kiwisaver members not be given the option to divert their savings contributions to repay the mortgage on their principal residence".
Officials warned that mortgage diversion would tip the balance towards Kiwisaver becoming a home buying scheme and undermining long term savings.
Then, in July, Cabinet agreed at the request of Dr Cullen and Revenue Minister Peter Dunne to do a U-turn and agree to mortgage diversions, with the details being sorted out in yet to be written regulations.
The changes were announced shortly after the decision and included in legislation passing through Parliament at the time.
Mr Foss said the changes were a "mess" which was typical of Labour's "cavalier attitude to parliamentary processes and advice".
Mr Dunne said Cabinet had initially rejected a proposal to allow 100 per cent of Kiwsaver contributions, but a proposal to allow 50 per cent had been accepted.
"Independent actuaries have described it is a masterly way to enable people to save for their retirement and service their mortgage at the same time," Mr Dunne said.
"It has also been warmly embraced by scheme providers and banks. The only critic now of Kiwisaver is the National Party."
- NZPA
