Cullen Michael: KiwiSaver Bill — First Reading 
Cullen Michael: KiwiSaver Bill — First Reading 
[Volume:629;Page:1673] 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 I move  
That the KiwiSaver Bill be now read a first time. 
 What it pleasure it is to move from sleazy allegations about the past to the future of this country and the things that are important to the great majority of New Zealanders. I intend that the KiwiSaver Bill be referred to the Finance and Expenditure Committee. 
The KiwiSaver Bill represents a landmark in social and economic legislation. Saving and investing is the foundation of the future wealth of our country and of us as individuals. KiwiSaver adds a new important element in the savings landscape providing a vehicle to encourage all working New Zealanders to set aside a portion of their earnings to fund their long-term income security. 
It completes a set of measures that this Government has taken. First when elected in 1999 we restored the cuts made to New Zealand superannuation by the previous National Government consistent with its record of attacking superannuitants over its 9 years in office. Second we moved to create the New Zealand Superannuation Fund to revive long-term stability for the basic State pension and remove the years of instability that had characterised the 1980s and 1990s. Third we recognised the need for the Government to show leadership in providing workplace savings options by introducing the State Sector Retirement Savings Scheme—like all other initiatives attacked at the time by the Opposition but taken up by a far higher proportion of public servants than we had anticipated. Now KiwiSaver completes that picture by providing easy access for all employees to a long-term savings scheme. 
Like most Western nations we have struggled to achieve high rates of participation in long-term retirement savings schemes. New Zealand superannuation provides a base level of income in retirement. It has always been clear that most Kiwis will have to top that up with their own savings in order to avoid a significant drop in income during retirement. The current savings environment provides little encouragement for New Zealanders to address the issue earlier in their working life. Many never develop a serious savings habit and delay any serious attempt to save until relatively late in their working lives. KiwiSaver is an important factor in addressing that problem not through compulsion or through distortionary tax breaks—both of which Mr Key now seems committed to on the basis of a radio interview last night—but through a relatively simple mechanism of automatic enrolment. 
KiwiSaver focuses on encouraging savings in the workplace and that allows for deductions at source provides benefits of scale and reaches a high proportion of the population that is able to save. There are 6 features of the bill. First the scheme tilts the playing field towards establishing a long-term savings habit. It does so through automatic enrolment when an employee starts a new job—for those aged 18 to 65. All others below the age of 65 may join KiwiSaver at any time—those in a job and the self-employed. Contributions are deducted from pay by the employer at a default rate of 4 percent or 8 percent if the employee elects a higher rate. Those who are not employed will be able to elect their own contribution rate in agreement with their scheme. The Government provides a start-up contribution of $1000 per member—a flat rate—which of course is worth more for those on low to modest incomes than for those on higher incomes. 
Second the bill locks in savings for use in retirement. Savings are primarily for retirement and funds cannot be accessed until the age of 65 or after 5 years’ membership of KiwiSaver whichever is the later—except in the case of the purchase of a first home serious financial hardship or permanent emigration. In the case of death of course the savings become part of the estate of the deceased person. Members can stop contributions for up to 5 years at a time via taking a contributions holiday with contributions resuming unless a further option to suspend is exercised. No contributions holiday can be taken until 12 months after joining KiwiSaver. 
Third KiwiSaver provides members with a choice regarding how their savings will be managed. Members can choose from a range of funds managers whose products qualify under the KiwiSaver scheme. There is a default option for those who do not choose a funds manager and members can change between schemes at any time. 
Fourth KiwiSaver minimises compliance costs for employees employers and providers. Employers will deduct contributions from employees’ pay and forward them to the Inland Revenue Department along with PAYE. Employers will be able to make contributions on behalf of their KiwiSaver employees via the Inland Revenue Department or direct to a scheme manager. The actual rate of an employer contribution will be a matter of negotiation between the employer and employee. Employers will be able to choose the preferred KiwiSaver scheme for their employees if they wish and if the employees have not already chosen their own scheme. Employers with a suitable work-based registered superannuation scheme will be able to apply to the Government Actuary for an exemption from the automatic enrolment provisions. The Government contribution towards fees will be a flat dollar amount per member per annum and will be paid into each member’s account. 
Fifth the bill provides for prudential oversight of schemes and allows existing fund managers to join. Although KiwiSaver schemes and products will not be guaranteed by the Government as all existing products are not KiwiSaver schemes will be governed by trust deeds and regulated in a similar fashion to registered superannuation schemes. A limited number of providers of default schemes will be selected by a competitive tender process and calls for expressions of interest will occur shortly. Other providers will be able to offer KiwiSaver schemes if they meet a minimum set of criteria including a requirement that the fees are not unreasonable. Existing registered superannuation schemes are able to operate independently of KiwiSaver to convert to a KiwiSaver scheme or to establish a KiwiSaver scheme within their existing scheme under their existing trust deed. 
Sixth KiwiSaver includes a mechanism to encourage homeownership as an important element in long-term financial security. KiwiSaver will be linked to a new scheme to assist modest to middle-income families with a deposit for a first home. Those who are with KiwiSaver for a minimum of 3 years will qualify for a deposit subsidy of $1000 a year up to a maximum of 5 years at the time of purchase of their first home. They will be able to draw down all their accumulating savings except for the initial $1000 start-up contribution. There will be conditions relating to the total household income of the applicants and the value of the house being purchased—the criteria are yet to be determined. The homeownership deposit subsidy will also be available to members of registered superannuation schemes if their employer is exempt from the automatic enrolment provisions. 
Since the Budget 2005 announcement the Government has engaged in extensive consultation with providers employers and consumer groups to ensure that the KiwiSaver scheme is robust and workable. That consultation has led to some changes to KiwiSaver. Those changes include clarifying how information about the allocated default schemes will be sent to new employees extending the opt-out period for new employees from 3 weeks to 6 weeks in order to enable employees to seek financial advice extending the minimum period before a contributions holiday can be taken from 3 months to 12 months and providing existing registered superannuation schemes with an option to establish a registered KiwiSaver scheme within their existing registered superannuation scheme under the existing trust deed. 
The Government intends to have the KiwiSaver scheme up and running by 1 April 2007. That would require the bill to obtain royal assent by early October in order to ensure that providers of default schemes have around 6 months from their appointment time to be ready for the scheme to commence. That means that tenders to select providers of default schemes will occur in parallel to the select committee process and those providers will be appointed after the legislation gets the royal assent in order to meet obvious constitutional objections to anything untoward occurring in that regard. We anticipate perhaps some 25 percent of eligible people will take up enrolment within some 5 years of the start of the scheme. There will not be an initial surge impact in terms of the housing market because no one will qualify for the deposit subsidy until 1 April 2010. 
The KiwiSaver scheme has been warmly welcomed by the savings industry and supported by a range of business groups. It is supported by a number of parties in the House for discussion within the select committee. The only significant group in the country that has condemned the scheme has been the National Party. I am happy to stand with the great majority of Kiwis who dream of owning their own home and dream of having a secure retirement—not having made millions of dollars in financial market speculation as a means of buying their own retirement provision.