Tremain Chris: KiwiSaver Bill — In Committee 
Tremain Chris: KiwiSaver Bill — In Committee 
[Volume:633;Page:4930] 
CHRIS TREMAIN (National—Napier) 
: 
 I take this opportunity to canvass Part 3 and three clauses in particular—the contribution rate; clause 72 which covers interest on money in the holding account with the Inland Revenue Department which I will start with; then the contributions holiday. 
I would like the Minister to give New Zealand a commitment regarding clause 72 which covers interest on money in the holding account. What happens is that from the start of contributions money from the employer is put into the Inland Revenue Department. It sits there for 3 months before it is passed on to the default provider that the particular employee has chosen. I want the Minister to give us a commitment that the Inland Revenue Department will not be taking the margin on that interest. I want New Zealanders to know that there is no margin on the money going into that account for a 3-month period and that the full amount plus interest that the Inland Revenue Department provides will be going into the accounts of the KiwiSaver scheme providers. I am looking forward to an answer on that point. 
What I would like to canvass in particular in Part 3 is the contribution rate. It was an interesting issue that vexed the Finance and Expenditure Committee and Jeanette Fitzsimons has raised it today as well. Clause 55(1) focuses on that contribution rate. The key point with this bill is that there will be two contribution rates—firstly a default rate of 4 percent and secondly an 8 percent rate which employees can choose to contribute against. I would like to talk members through the different submissions that the select committee received on these rates. Mr Woolerton was present for these but Mr Hide was not available. 
The first submission we received was that employer contributions should be supported if not required. We heard that from a number of union organisations—from Eriksen and Associates and a number of different submitters. I guess that is why we have ended up with clause 56 which states that contribution rates may be changed by Order in Council. So at any time we could see a change to this bill to make employer contributions compulsory. I want employers out there to know that that clause is there and that at any time this bill could be changed simply by Order in Council and not by an Act of Parliament to make employer contributions compulsory. 
I come back to the submissions. The second submission was that a more flexible range of contribution rates should be supported to allow more choice and to encourage greater participation and Jeanette Fitzsimons has come to the Chamber this afternoon with her amendment to add a change to 2 percent. A number of submitters stated that 2 percent would be a rate that many employees could afford. In fact the Hon Mark Gosche was an advocate of the 2 percent rate and stood up on many occasions to fight for it. But there are a number of reasons why the 2 percent rate was not put into the bill and I will go through them. Firstly it was felt that a greater number of small savings accounts with very small totals would eventuate and that was a concern. The second point is there was a concern that a greater number of people would take up the account in the first instance with only a small amount just to get the $1000 incentive payment. That is where the committee spent quite a bit of time deciding—and Jeanette Fitzsimons put this forward—whether we should be putting up only a $500 incentive instead of a $1000 incentive for people who save at the 2 percent rate. We basically decided it was getting too difficult at that point and on the principle of “keep it simple stupid” we focused on two contribution rates—4 percent and 8 percent. 
Another reason why the 2 percent rate was not considered was that a very accurate table the officials gave us showed us the contribution rates needed to achieve a 70 percent income replacement in retirement. That also takes into account New Zealand superannuation which my colleague John Key pointed out was introduced by Mr Muldoon in the 1970s and we still have it to this day albeit somewhat changed. The table conveys important information. It shows us the contributions that employees would need to make to get to a level that would give them 70 percent income replacement in retirement.