Further changes likely for KiwiSaver

KiwiSaver turned 4 on Friday but birthday celebrations were kept low key. Despite accumulating $8 billion in savings, KiwiSaver, like other superannuation schemes before it, has become a political football. Business editor Dene Mackenzie reports.

The Government, in its May Budget 2011, changed the rules for KiwiSaver and Labour leader Phil Goff took advantage of those changes to take a swipe at Prime Minister John Key.

From Friday, the member tax credit paid by the Government into each KiwiSaver account to boost savings was cut by 50%.

"National's latest broken promise takes $2 billion out of the pockets of Kiwi mums and dads over the next four years, budget documents show, and forces them to dig deeper if they want to keep up their savings.

"That's some birthday present from John Key on the day the hugely successful KiwiSaver savings scheme turns 4," Mr Goff fumed.

However, Dunedin financial adviser Peter Smith said despite the budget reducing the tax incentive, KiwiSaver was still a good scheme because it was locked into "retiring age", whenever that might be. Currently, it was 65.

KiwiSaver provided a good base for New Zealand's infrastructure where there was an emerging problem for fund providers to find somewhere to place an ever-increasing inflow of funds.

"As stated in the Budget, the Government expects there to be $25 billion in 2015. There is currently $8 billion invested in only four years."

A new raft of investments would be opening up for fund managers and Mr Smith suggested the Government look at having joint ventures on infrastructure with KiwiSaver investments.

Already, there was scope for KiwiSaver fund managers to invest in the Canterbury rebuild.

Forsyth Barr savings specialist Damian Foster (27) said KiwiSaver was now established as the retirement savings platform for more than 1.7 million New Zealanders but he believed more changes were on the way.

He predicted that KiwiSaver would eventually become compulsory for all employees aged between 18 and 65.

Once funds reached a certain level, individuals might start taking more active control of their accounts, similar to the "self-managed" superannuation which was popular in Australia.

Minimum contributions were likely to rise from 3%, Mr Foster said.

One of the main things he would like to see introduced was the ability of students to pay off their student loans using KiwiSaver.

"I have found many young people join KiwiSaver, but avoid making serious contributions unless they are saving for a home deposit.

"Having a student loan withdrawal also appeals for younger families where parents and grandparents can contribute to the account on special occasions, knowing the funds are locked away to pay for tertiary education."

The other two things Mr Foster would like to see introduced was KiwiSaver becoming compulsory and agreement between the major political parties not to tinker with the scheme.

The agreement among politicians would stop KiwiSaver becoming a political football and help give New Zealanders the confidence to rely on what had already become an $8 billion savings platform.