Call for $2k a year KiwiSaver sweetener

Increasing the KiwiSaver member tax credit to up to $2000 a year could prompt more self-employed people to contribute to the scheme, the Retirement Commissioner says.

It is one of the suggestions up for discussion as the commission finalises its three-yearly review of retirement-income policies.

While most adult New Zealanders are members of the retirement-savings scheme, many are not contributing much.

That’s particularly a problem for the self-employed, who do not have the incentive of an employer contribution to help them to save.

The Government asked acting retirement commissioner Peter Cordtz and his team to look at the impact on retirement-income policies of the changing nature of work, including the increasing number of people who are selfemployed or in temporary jobs.

One in 20 employed New Zealanders is a contractor but research shows only 40 per cent of self-employed, contractors and business-owners contribute to

Acting commissioner Peter Cordtz

KiwiSaver, compared to 73 per cent of workers employed full time. A KiwiSaver working group led by Sorted managing editor Tom Hartmann said a bigger member tax credit could help.

‘‘One way to help right the balance is to tilt the Government matcher towards contributions that are voluntary, and increase the amount KiwiSaver members stand to gain,’’ he said.

He suggests that instead of the $1043 being assessed from the combined employee and employer contributions, members put in extra to gain the Government handout.

The Government matcher should also be increased from 50c for every dollar up to $521, to $2 for every dollar up to $1000, he said. This would give members a further $3000 in their accounts each year – $1000 of their own money and $2000 from the Government. If that tempter was available for the whole of a KiwiSaver member’s life, it could be a significant boost.

An 18-year-old joining contributing $20 a week – about the amount needed for the full member tax credit – would be on track for $91,571 at retirement in a balanced fund. A further $3000 a year would add almost $130,000 to the final balance.

Hartmann said the extra cost could be contained by limiting the incentive to the first 10 years.

This would establish a savings habit and make the most of compounding interest, he said.

‘‘Dialing up the Government contribution would level the playing field between employed and self-employed workers, and those out of the workforce.’’

Cordtz will consider the proposal along with public feedback and submissions before deciding on what to include in his report to Government in December.