The new National-led Government should consider introducing a standard taxation rate on investment earnings to make KiwiSaver schemes more attractive for people to join, a study by Mercer Consultants recommended.
Mercer spokesman Bernie O'Brien said yesterday most KiwiSaver schemes were PIEs (portfolio investment entities), with investment earnings taxed at either 19.5% or 30%, depending on the individual investor's tax rate.
Under the changes announced in this year's budget, many lower income earners would have a personal tax rate below 19.5%.
Standardising the tax rate at 17% - the weighted average of the new lower 12.5% and 21% tax rates after April 1, 2001 - or 12.5%, which aligned with the forthcoming lowest marginal personal tax rate, would make KiwiSaver schemes more attractive for people to join, he said.
"It would also encourage transfers from non-superannuation assets and traditional superannuation products - possibly from Australian superannuation schemes.
"This could have a profound effect on the savings habits of New Zealanders by encouraging them to use KiwiSaver as their primary retirement savings vehicle and to save for the longer term."
Alignment of the tax rates was critical to supporting New Zealanders to manage their finances and save for their retirement, Mr O'Brien said.
Otago-Southland Employers Association chief executive Duncan Simpson said KiwiSaver started as a simple concept but by the time National's changes go through, it would have been altered three times.
That created more work for payroll staff.
There were several unknown factors regarding the proposed changes to KiwiSaver, he said.
National's policy meant employers would be able to choose to contribute a minimum of 2% of gross salary.
The employers' compulsory contribution rate would be capped at 2% of gross salary for employees who were KiwiSaver members.
Mr Simpson said lower-paid people who could not contribute at 4% might be tempted to join the scheme after April 1 when there would be a lower 2% rate of contribution.
"Employers with a lower paid workforce will be watching that from April as, potentially, their costs could go up depending on the mix of staff."
About 700,000 people changed their jobs each year, and data showed that about one-third of the current 814,000 KiwiSaver members had only remained in the scheme because they had not bothered to take advantage of the 30-day opt out clause.
If people changed their jobs and the minimum contribution was only 2%, more people might stay in the scheme which had already reached a 10-year projected membership in little over a year, Mr Simpson said.
Mercer recommended employers should review their current contribution policy and decide whether to move to the 2% minimum contribution rate, Mr O'Brien said.
For employers now contributing at the minimum compulsory rate, there would be little change unless the future increases to 4% had been included in employment agreements.
Mercer's research showed that National's policy would disadvantage lower-paid employees.
The current process whereby the KiwiSaver scheme applied for member tax credits on the member's period of membership and amount of contributions received would need adjusting, he said.
Employees whose taxable salary was less than $52,000 a year would not receive the full amount of tax credits.
Voluntary contributions would not count towards the member tax credits and that would result in lower savings at retirement for lower-paid employees.
Repeal of the KiwiSaver-related provisions in the the Employment Relations Act would be accompanied by an amendment to make it clear no employer could have his or her gross taxable salary reduced if they joined KiwiSaver, Mr O'Brien said.
"The compulsory employer contribution must be in an addition to their normal pay.
"Furthermore, the policy proposes a total remuneration 'use it or take it in cash' approach can be used if negotiated in good faith."
That seemed at odds with the proposed changes to the Act as non-KiwiSaver employees who initially elected to take the component in cash would have their taxable salary reduced if they subsequently joined the scheme, he said.
In its current form, National's policy would still appear to contain loopholes, so Mercer recommended employers wait for the final policy before acting.
