Williams Poto; Bayly AndrewPart 4 Amendments to other enactmentsCHAIRPERSON (Poto Williams): We come to Part 4—the debate on clauses 221 to 276 Amendments to other enactments" and Schedules 3 and 6.ANDREW BAYLY (National—Hunua): Thank you Madam Chair. There's a lot in Part 4 and there's some quite important stuff. I think perhaps the most important bit is around the KiwiSaver enhancements. As we all know KiwiSaver is a vital part of that picture towards New Zealanders saving for their retirement. So we have got the New Zealand Superannuation Fund—about $39 billion in its accounts and obviously being managed incredibly well. The average return is I think about 10.3 percent since it was established and it's doing a great job in terms of helping the Government meet its requirements for paying out New Zealand super. The other side of that of course is the KiwiSaver accounts that hopefully virtually everyone has. Of course we had the incentive to incentivise people to join KiwiSaver accounts that if people put in enough money they would get $1000 on the initial joining fee and of course people are entitled to just over about $1059 from memory provided that they meet the minimum contribution every year. So that contribution that the Government provides to KiwiSavers in New Zealand is a very very important tenet. Again the KiwiSaver accounts—roughly a $40 billion account and growing and we need to get people to save.The simple fact is that not enough New Zealanders are saving. In fact there are from memory about 2 million people involved in KiwiSaver of which about 500000 are not contributing or in broad terms are on a contributions holiday and that is simply not good enough. In the work that I've done I think that the average balance sitting in KiwiSaver accounts is about $26000. That as an independent piece of wealth that people can access when they retire is simply not enough and we need to do more and part of this bill is about dealing with that.The Retirement Commissioner's work on this issue was fundamental. She looked at a couple of scenarios under the current payment of what you're entitled—roughly about $23000 for a single person rising to $28000 for a couple—and said "Could you live on that and what more would you need to live on to live in different scenarios?" One of the scenarios was a very modest living standard obviously with no overseas trips—very modest living standards—and that showed that basically you needed about another $100 a week. That was a "no-frills budget" I think she called it and then there was another category which was a more generous lifestyle if I can use that term.What it showed is that for most people they need between about a couple of hundred thousand and up to $700000 of additional assets to be able to live comfortably in their retirement. That's a substantial amount and I think the average was closer to about $360000. Of course with New Zealand with its trending population we've got the baby boomers hitting that retirement age—or if they haven't already they're certainly getting very close to it—and the demands that will have on the New Zealand Government to be able to meet future superannuation payments and also to make sure that those people going into retirement can actually pay and have a quality of life that we in New Zealand expect.So with that KiwiSaver as I said the balance is very low and it's very important that we actually get people turning their minds toward this whole issue. Personally I don't think New Zealanders are focused enough on it. I think that with that sort of liability that's coming towards us overlaid with health costs that are very significant—and our current health budget is about $16 billion at the moment. As people move into retirement the last two years of their lives are when by far—and I forget what the percentage was; I think it was something like 80 percent of your total health spend occurs in the last two years of your life. So these changes around KiwiSaver enhancements are vital and these are covered in clause 216 and clauses 231 to 237.I think probably the most important thing—there were five actual elements that were incorporated in the changes that we want to do to KiwiSaver and I'll just go through them. I think the best thing is introducing to KiwiSaver alternative contribution rates. So I think most people will be aware that 3 percent is the current contribution rate. We have 3 4 and 8—8 is the max—and so what this bill does is it introduces a category of 6 percent and 10 percent. So now you've got an entire suite that takes you from—and this is a choice for individuals—3 percent to 10 percent of your contribution from your salary.We've filled in the gap because the gap between the lower band and the higher band was too big and so by far most people invested at the lower rate of 3 percent and by the time you get to 8 percent there is a very very small portion of people who are taking that from their earnings and putting it into their KiwiSaver. Of course there's a contribution required from employers matching that contribution which is very very important. So that 6 to 10 percent is a fundamental change and I think a very good change.The second thing is reducing the holiday—and I talked about this just a moment before about the maximum contributions holiday. At the moment the legislation has always assumed that you could opt out from contributing to your KiwiSaver for a maximum period of five years and in most cases many people have opted out for five years—and I talked about those 500000 who are not currently contributing. What happens is they just get into a zone. They don't think about KiwiSaver and suddenly time has passed and they haven't contributed. The thing about saving for your retirement is that the earlier you start doing it and the more consistent you are in terms of saving the better the outcome through just the compounding impact of money through earning interest on interest and that is the essential stuff.I think one of the other categories that's probably missing in the KiwiSaver debate is business people. In many cases they are owner-employers. They own their own businesses and they're their only employer—and employee in that case. Many of them are not contributing to KiwiSaver and it's quite a hole in terms of the whole debate. But this contribution holiday is now going to be set at a year so if you want to roll it over you've got to make a conscious decision at the end of the 12 month period whether you want to take another year's contribution.I think the whole thing about a contribution holiday is wrong—it's wrong. It's not a holiday at all because you're actually saving for your own future and so some of the nomenclature has been changed. We're now talking about a "savings suspension" which really means that you're not saving for your future. It's a small change but it's very very important and I think it's one that sort of recognises that the real issue is that you need to save for your future. If you're going to have a meaningful and worthwhile lifestyle that you want and anticipate when you're in your retirement—CHAIRPERSON (Poto Williams): I apologise to the member. The time has come for me to leave the chair for the dinner break.Sitting suspended from 6 p.m. to 7.30 p.m.ANDREW BAYLY: Thank you very much Mr Chair. Just before the break I was obviously going through the changes to KiwiSaver and they're quite significant. I identified there are five substantial changes in the amendments or enhancements to the KiwiSaver arrangements. The first one was including a new contribution rate of six and also 10 percent; reducing the maximum contribution holidays from five to one year so it forces people who want to stop contributing to their KiwiSaver to actually have to make that election to not do that every year rather than every five years; and changing the name from "contribution holiday" to "savings suspension" because effectively people are stopping actually providing for their future retirement. The other thing I just now wanted to touch on in the last little bit of my speech is the issue around the 65-year-olds opt-in clause of KiwiSaver. I think I'm going to have a colleague who's going to follow me on this—but it's vital; if you look at New Zealand we need people who can invest in vehicles that can help them continue to grow their investments right through their retirement. And the issue around KiwiSaver; it is a cost-effective way to do that and the amendments facilitate that for over-65s. In my view it's a great thing and hopefully my colleague's going to pick up on this."