Start of KiwiSaver scheme likely to be delayed by months

Labour's flagship KiwiSaver scheme is set to be delayed after a select committee recommended several changes to it, including pushing back the start date to next July.

The workplace scheme - trumpeted by Labour as a way to turn around New Zealand's poor savings record - was to kick off next April.

But several submitters to the finance and expenditure committee argued that the original timeframe was too tight and the savings industry would struggle to be ready in time.

In a report presented to Parliament yesterday, the committee recommended delaying the KiwiSaver start date by three months to July 1.

The report shows the committee has also resisted pressure from unions to allow employees to have lower contribution rates than the proposed 4 per cent or 8 per cent of gross wages or salary.

Another change recommended is the ringfencing of people's contributions so Inland Revenue cannot delve into Kiwisaver refunds to meet any other tax liabilities a person might have.

The committee said it believes it should be optional for an employee to request that IRD use a refund to meet another liability.

Asked if Labour would agree to delay the start date by three months, a spokesman for Finance Minister Michael Cullen said yesterday that issues arising from the committee's report would be addressed at the bill's second reading on Thursday.

National's finance spokesman John Key, who has derided KiwiSaver as a glorified Christmas club, said there was doubt over whether even the new date would be met.

"Even the new extended timeline is very tight, extremely tight," Mr Key said. "What it shows is that while it's a relatively simple concept, it's backed up by enormous complexity that doesn't immediately meet the eye."

Vance Arkinstall, chief executive of the Investment Savings and Insurance Association, described the three-month extension as "welcome breathing space".

"The three months is perhaps not quite as much as we would have liked - but nonetheless it would be a very welcome change."

Several submissions made to the select committee argued for a contribution rate of 2 per cent to be added to the KiwiSaver bill for low income workers.

But the committee decided against that.

"A lower contribution rate could lead to lower rates of saving for all KiwiSaver members," the committee's report says.

Greens co-leader Jeanette Fitzsimons, who is a member of the committee which examined the bill, disagreed with that decision.

Her position was that by the time people were earning enough to save 4 per cent they would not have established a savings habit.

Mr Key said he had sympathy for that view, which was also supported in submissions by the Council of Trade Unions.

"I was a bit of the view that because we're trying to change behavioural patterns here, just getting them started was the important thing," he said.

The CTU was happier, however, with the committee's recommendation that any employer contributions count towards the minimum 4 per cent level.

Among other changes suggested in the report is the extension of the scheme to government employees working overseas.

The committee also looked into whether members' contributions could be diverted to paying their mortgages. But there was little interest from banks, it said, because of the delay before funds would reach them and risks involved in having mortgage payments made by a third party.


THE SCHEME

* New employees automatically enrolled, but can opt out.

* Minimum contribution - 4 per cent of gross wages.

* Savings locked in until 65, except for hardship, emigration or for first home deposit.

* New members get $1000 government contribution.

* First home deposit subsidy of up to $5000 after three years.