Budget 2011: Key KiwiSaver changes

The following are the key changes the government is making to KiwiSaver.

Thursday, May 19th 2011, 2:22PM 8 Comments

The $1,000 Kick-Start is unchanged. The Budget changes include:

· From 1 April 2012: The tax-free status of employer contributions will be removed. These will be taxed at an employee's marginal tax rate.

· For the year to 30 June 2012 and beyond: The Member Tax Credit rate will be halved from $1 to 50c for every $1 contributed by members, up to $521 a year - half the current maximum. These payments are made annually after the government financial year, so the first payments at these new levels will occur in the second half of 2012.

· From 1 April 2013: The minimum employee contribution rate will rise from 2 per cent to 3 per cent.

· From 1 April 2013: Compulsory employer contributions will also rise from 2 per cent to 3 per cent.

Budget 2011 changes to KiwiSaver will save $2.6 billion over four years.

Revenue minister Peter Dunne says the changes ensure KiwiSaver remains an attractive and subsidised savings option that is financially sustainable into the future.

"We believe most people will find 3 per cent affordable, and the employer and Government contributions, alongside the $1,000 Kick-Start payment, will continue to offer a very attractive rate of return for the money employees put in themselves," Dunne says.

"We have given workers and employers two years to adjust and plan for the increased contribution rates, which will kick in at a time of strong forecast economic growth.

"Taxing employer contributions to KiwiSaver at the employee's marginal tax rate makes sense. About half of the benefit of the current arrangements goes to the top 15 per cent of income earners, who get a larger tax break due to their higher marginal income tax rate.

"In addition to these changes, the Government will discuss the Savings Working Group's recommendation of a one-off enrolment exercise with employers after the Budget and look at how that might be done without unnecessary compliance and administrative costs," Dunne says.

« Budget 2011: More for regulation; more bonds; KiwiSaver cuts

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Comments from our readers

On 19 May 2011 at 3:42 pm Lionel said:

And this is precisely why we did NOT join up. Because we knew we could not trust governments to fiddle with the rules in future.

On 19 May 2011 at 5:20 pm Regan said:

Well done Lionel. Since 2007 you have wisely chosen not to get $1000 upfront, $4000+ of member's tax credits. If you are employed you also saved your your employer from doubling what you have put (tax-free) in. Aren't you clever? Gosh those politicky pointy-heads sure could have screwed you over.

On 20 May 2011 at 6:50 am Colin said:

To Lionel, by NOT signing up because you thought government would fiddle with KiwiSaver is illogical. The only loser in NOT signing is you. Go back to when you made that decison and calculate what you could have had in your KiwiSaver today - much more than any other savings program could have provided. Don't deny yourself a good opportunity just because you believe wouldn't run perfectly - nothing does. People in KiwiSaver since day one have easily accumulated over 25k

On 20 May 2011 at 9:04 am Mark said:

Dumb Lionel.....As a reasonably high income earner I have enjoyed the fact that around $5000 has accrued in my KS over the last four years courtesy of the Gov't and another $35k courtesy of myself and my employer.It remains a no brainer for most thinking people.

On 20 May 2011 at 9:25 am Ian said:

Lionel, and this is why in the 3, almost 4 years since inception you have missed out on freebies of $1000 kick start, tax-free employer contributions and a gift of $1042.86 per year from the govt and why you will continue to miss out on the freebies. We all knew it was going to change and will continue to change - so what - while it remains more attractive than the 3% less tax you can recieve at the bank or another over-priced, non-incentivised Superannuation scheme why would you not be in it? I cannot fathom your negativity on a product that has helped me accelerate my retirement savings at a far, far, far greater rate than any other investment I have been made aware of. Ian

On 20 May 2011 at 9:51 am HRS said:

Lionel, while there is no doubt that the government is fiddling with the rules, I cannot understand the reluctance to join up. Even under the changed rules, the government/tax payers will be putting near $500 into your kiwisaver account each year, in addition to the $1,000 kickstart. In addition to that, your employer is required to contribute as well. Disregarding any investment returns, the government and employer contributions still provide a very compelling reason for most to join kiwisaver. While you can always save outside of a kiwisaver scheme, if you choose to do so instead of kiwisaver you will be doing yourself out of the government contribution and the employer contribution (assuming you are an employee). Frankly, who cares if they fiddle while there are still benefits to be a member. I can't see any government taking money out of a member's kiwisaver account!

On 20 May 2011 at 11:34 am HRS said:

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Budget 2011: Key KiwiSaver changes

The following are the key changes the government is making to KiwiSaver.

Thursday, May 19th 2011, 2:22PM 8 Comments

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