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Increase KiwiSaver rates, but not this way – academic

Increase KiwiSaver rates, but not this way – academic


A Massey University KiwiSaver expert believes Labour’s proposal to introduce a variable contribution rate to compulsory KiwiSaver will have negative impacts for small businesses and those on low incomes.

Dr Claire Matthews says she “would love to see KiwiSaver rates increase – but not this way”.

“The spectre of the government meddling with KiwiSaver is not welcome,” she says. “It’s the realisation of the fears of many Kiwis, especially those who have not signed up to the scheme.

“Using KiwiSaver as a form of monetary policy is really straying away from the purpose for which it was created.”

Dr Matthews also warns that compliance costs related to constantly changing contribution rates will be particularly onerous for small businesses.

“Each time the KiwiSaver contribution rate changes, businesses will need to update their payroll systems to deduct the appropriate amount requiring additional, non-productive compliance activities.”

She also says there will be a disproportionate impact on people on low incomes and those trying to save.

“Even five dollars per week can be a significant sum for someone on a low income. And, as usual, the focus is on achieving lower rates for mortgage holders with no thought given to those with bank deposits earning lower interest income. I also question David Parker’s claim that lower interest rates would mean lower credit card rates. Credit card interest rates tend to be very inelastic.”

Meanwhile, Dr Matthews says, those on higher incomes are likely to be contributing more to their KiwiSaver plans than the minimum. “For these people, an increase in the minimum contribution rate will have no effect, thus diluting the impact of the policy on the wider economy.”

Dr Matthews also sees complications arising from tying up retirement savings and monetary policy.

“Although increasing the contribution rate to KiwiSaver is desirable, like any other change to the KiwiSaver scheme it should be done for reasons related to retirement income policies.

“While not wanting to discuss the wider issues associated with Labour’s policy on monetary policy, there has to be concern over giving multiple goals to the Reserve Bank, especially when there is potential for competing goals.”

Ends

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