Bill curtails savings holiday

The Government is going to tweak KiwiSaver to bring down the number of people on contribution ‘‘holidays’’, while also making the super savings scheme more age-friendly.

The Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) Bill, introduced into Parliament yesterday, would limit the maximum contributions ‘‘holiday’’ that savers could take before having to apply for a new one, from five years to one.

The bill would also pave the way to letting people aged over 65 join KiwiSaver for the first time.

Retirement Commissioner Diane Maxwell hailed the move as a victory, having fought for reforms since 2016.

Currently there are about 135,000 KiwiSaver scheme members who on a contributions holiday, which was designed to let people put their contributions on hold should they need the money for something more pressing than retirement savings.

But contribution holidays were automatically set for five years, so unless people decided to start saving again, they could easily fall out of the habit of saving, or simply forget to voluntarily end their holidays.

Once the Taxation Bill becomes law, KiwiSavers will have to renew their contributions holidays once every 12 months, if they wish them to continue.

‘‘Stopping contributions for five years has a significant impact and disrupts long-term savings,’’ said Maxwell.

‘‘Not only do members’ accounts not grow by their contributions, but they also miss out on their employers’ contributions and the government contribution of up to $521 a year.

‘‘For many people five years is likely to be longer than necessary and a one-year renewal provides a prompt to reconsider their position and assess whether they can restart saving.’’

Maxwell also secured a name change from ‘‘contributions holiday’’ to ‘‘savings suspension’’.

Letting people aged over 65 join KiwiSaver, and removing the five-year lock-in period for people who join KiwiSaver between the ages of 60 and 65, was recognition that older people increasingly used KiwiSaver as a low-cost means of keeping their money invested after the age of 65.

‘‘There is no apparent reason for those over 65 not being able to join KiwiSaver,’’ Maxwell said.

There’s one other tweak to KiwiSaver in the bill. Currently, there are three contribution rates

‘‘For many people five years is likely to be longer than necessary and a oneyear renewal provides a prompt to reconsider their position and assess whether they can restart saving.’’ Retirement Commissioner Diane Maxwell

people can nominate with their employers: 3 per cent, 4 per cent and 8 per cent.

Two new contribution rates will now be introduced: 6 per cent and 10 per cent.

‘‘We’ve had many New Zealanders tell us that the gap between 4 per cent and 8 per cent is too large for those able to contribute more, so they feel stuck on the lower rates,’’ Maxwell said.

‘‘Others want the ability to save even more for their retirement.’’

Some people had called for there to be lower contribution rates of 1 per cent and 2 per cent so people on lower incomes could begin saving.

Maxwell, who heads the Commission for Financial Capability, recommended all the changes in the 2016 review of retirement income policy, but the previous government did not decide to put them into law.