Cullen Michael: KiwiSaver Bill — Second Reading 
Cullen Michael: KiwiSaver Bill — Second Reading 
[Volume:633;Page:4845] 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 I move  
That the KiwiSaver Bill be now read a second time 
. When I introduced the KiwiSaver Bill into Parliament back in March I said that it represented a landmark in social and economic legislation in New Zealand. I am heartened to see that through the process of submissions from the public and consideration by the Finance and Expenditure Committee the bill is now even more firmly and strongly placed to improve the income security of ordinary New Zealanders in retirement. KiwiSaver will encourage people to change the way they think about saving for retirement and more important change the way they act. It will provide impetus ease and opportunity for a broad range of New Zealanders to establish a long-term savings habit. 
From its inception KiwiSaver has been designed to make saving compelling rather than compulsory. With a relatively simply mechanism of automatic enrolment organised in the workplace KiwiSaver allows for deductions at source provides benefits of economies of scale and reaches a high proportion of the population who are able to save. The Government is also encouraging participation through supporting KiwiSaver scheme members in a number of ways. First we will meet the cost of administration through the Inland Revenue Department. Second a $1000 upfront contribution will be provided to each new KiwiSaver scheme member. Third the Government will provide a scheme fee contribution at a capped level to savers in approved KiwiSaver schemes. 
A number of submissions on the bill suggest further measures the Government could take to foster a stronger savings culture through KiwiSaver. Many raised the need for tax concessions or incentives for savings. Others noted the need to promote or facilitate employer contributions. I am pleased to announce that the Government has responded to this feedback from stakeholders. As a further initiative to encourage KiwiSaver participation employer contributions to KiwiSaver schemes will qualify for an exemption from the specified superannuation contributions withholding tax up to a limit of 4 percent or the contributor’s own amount whichever is the lesser. The Government will introduce a Supplementary Order Paper to give effect to this change. 
A targeted specified superannuation contribution withholding tax exemption represents a moderate and prudent means to encourage businesses to help their employees reach their retirement savings goals. While employer contributions to KiwiSaver are not compulsory such contributions may form part of the total remuneration package that employers provide to attract or retain skilled staff in a tight labour market. By exempting employer contributions to KiwiSaver from specified superannuation contribution withholding tax we are increasing the value of the benefits employers can choose to offer their employees. The exemption as I say is capped at whichever is the lesser: the employer’s contribution or 4 percent of the employee’s salary or wages. This cap is a sensible measure; it will prevent excessive salary sacrifice arrangements from being entered into for the purpose of reducing a person’s tax liability rather than saving. It reduces the risk of abuse while also aligning with the basic savings requirements for KiwiSaver. In addition the cap will limit the specified superannuation contribution withholding tax exemption’s fiscal cost. This is estimated to be around $35 million in forgone revenue in 2007-08 increasing to $104 million in 2008-09 and $162 million in 2011-12. 
Many other new features of the bill serve to further strengthen KiwiSaver as a long-term retirement savings vehicle for working New Zealanders. I acknowledge the work of Shane Jones and the Finance and Expenditure Committee in this regard. Among the main changes are the extension of the implementation date from 1 April 2007 to 1 July 2007. This change is a further example of the Government’s responsiveness to the feedback from stakeholders. Changing the KiwiSaver start date by 3 months will ease the time pressure for employers and potential KiwiSaver scheme providers to prepare and therefore help to ensure implementation will be as effective and efficient as possible for all involved. 
Another significant change made in response to submissions is the decision to allow employer contributions to consist in part or even all of the 4 percent or 8 percent KiwiSaver contribution rates. In practice an employee may contribute 2 percent and an employer would contribute the other 2 percent to make up the 4 percent rate. This amendment to the bill will be welcomed by many. It provides flexibility for employers in the range of remuneration options they can offer employees and also provides an incentive to join KiwiSaver for employees who would otherwise struggle to save 4 percent on their own. 
I would like to touch on another major amendment to the bill—a change to the opt-out period. New employees will be able to opt out of KiwSaver from the end of week 2 after starting their job until the end of week 8. The opt-out period has been changed to allow employers to send employee details to Inland Revenue only once a month and therefore reduce their compliance costs. Because Inland Revenue will not be advised of new employees until later a longer opt-out period was needed. This is just one example of many where Kiwi-Saver has been designed to be as user-friendly to employers as possible. 
The effects of KiwiSaver will be far-reaching and these need to be clearly and widely communicated to all New Zealanders. It is also important that such a unique initiative should have its own unique visual identity. That is why a strong distinctive logo has now been launched to help achieve awareness and recognition of KiwiSaver. The logo will be used on all communications and material for employers employees and KiwiSaver scheme providers so it should become a familiar sight to most New Zealanders in the years ahead. 
This Government wants to see a larger proportion of ordinary New Zealanders making realistic savings plans for their retirement. We have already helped to create a secure environment for planning retirement income by restoring the level of New Zealand superannuation initiating the New Zealand Superannuation Fund and introducing the State Sector Retirement Savings Scheme. The State has been leading the way back into workplace-based superannuation under this Government. KiwiSaver will complete the strong foundation we have put in place to support New Zealanders to prepare for their future. 
The main criticism that has been made so far—apart from niggly ones around the edges which no doubt we will hear more of this afternoon—is that the scheme should be compulsory. This Government does not favour compulsory individual superannuation in part because we believe it is a risk for a consensus around an adequate base provided by New Zealand superannuation. Those who thus save significant amounts are less likely to be willing to contribute taxation to a secure and adequate New Zealand superannuation base which a significant proportion of the population will continue to rely on for their security in retirement. 
The debate is of course an open one and in the future if any Government wishes to introduce a compulsory scheme KiwiSaver will in fact make it easier by the very simple measure of removing the opt-out provision in KiwiSaver. On that matter I leave the bill to the good wishes of the House.