Savings product group members appointed
Membership of the new Savings Product Working Group was announced today. The working group will advise the government on the design and implementation of work-based savings products for retirement, which may involve identifying tax barriers to participation. For more information and the working group's terms of reference see the government's media statement.
Savings Product Working Group appointees
The government has appointed members to a special Savings Product Working Group to advise on the design and implementation of work-based savings products for retirement.
"Work-based savings schemes are an excellent way for New Zealanders to save because they provide deductions for savings at source, benefit from economies of scale and have the potential to reach a high proportion of the working population," Dr Cullen said.
"A few employers already offer their employees access to superannuation schemes, but they are in the minority, and employees lucky enough to have access to such schemes usually have to terminate their membership if they change jobs.
"The working group will look at New Zealanders' ease of access to work-based superannuation schemes and their ability to maintain access to them. It will then advise the government on the design and implementation of guidelines for generic work-based savings schemes that could be widely adopted by employers," Dr Cullen said.
The members of the Savings Product Working Group are:
- Peter Harris, self-employed contractor (chair)
- Diana Crossan, Retirement Commissioner
- Mike Woodbury, senior associate of Chapman Tripp
- Bernard Reid, actuarial consultant
- Ross Kent, managing director of AMP
- Andrew Leys, general manager of Southland Credit Union
"The collective background of the working group includes marketing, investment, actuarial, superannuation management, law and accounting and regulatory expertise, and I am very pleased to have been able to assemble such a depth and breadth of experience for the working group," Dr Cullen said.
The working group is to report to the government by the end of August 2004.
Terms of Reference
Savings Product Working Group
The Savings Product Working Group ("the Working Group") is appointed to provide advice to the Government on the detailed design and implementation issues to be resolved in delivering widely adopted generic work-based savings products. The term "work-based" refers to the employer's role in providing a direct deduction facility for contributions, providing access to savings schemes and providing education on retirement saving to employees through the work place, rather than actually managing a superannuation scheme. The Government considers that work-based savings schemes are a good way for New Zealanders to save for their retirement as such schemes provide for deductions towards savings to occur at source, benefit from economies of scale, and provide an avenue to reach a high proportion of the population.
While a number of employers do offer their employees access to superannuation schemes, the coverage in the New Zealand context is not significant and if an employee ceases to be employed by such an employer, the employee usually has to terminate their membership of the scheme. The problem to be addressed by the working group is the ease of access to superannuation schemes for New Zealanders and the ability to maintain that access until retirement. The Government considers that the availability of generic products that every employee can access and the ability to maintain a similar scheme if he or she changes employment has merit and may lead to increased savings for retirement. The Government further considers that the broad adoption of generic work-based savings schemes of this sort is unlikely to develop without Government action.
The Government proposes to provide some degree of funding to assist with the uptake of work-based savings products by removing some of the current tax disincentives such as the over-taxation of low-income earners saving through superannuation products. It may be that any such relief provided will only apply to a certain category of savings products. The task of the Working Group will include the design of a work-based savings product, or guidelines for current products that could be offered by several providers and further to resolve barriers to widespread offer of such products by employers. With respect to tax policy, the Working Group may also identify where the current tax system discourages participation in work-based savings products.
The issue of any tax incentive or subsidy for such a class of savings products will be considered separately by the Government as part of its consideration of the appropriate tax treatment of savings vehicles.
The Government considers that the Working Group's proposals should address the following key features, including them unless they are shown to conflict with core aspects of a solution:
- access for all employees (including part-time and casual) in a scheme as a result of their employment, including a salary or wage deduction facility for employee contributions;
- automatic enrolment of employees to such a product, unless an employee declines such enrolment;
- a method to generate long term savings that contribute to well being in retirement, such as lock-in of contributions until retirement except in limited circumstances; and
- portability of contributions between approved products.
In this regard, the Government seeks advice from the Working Group on the detailed design and implementation of guidelines for generic work-based savings products or solutions. In particular, the Government requires the following questions and issues to be addressed:
- what design features will be necessary to take into account the needs of low-and middle-income employees and how will any proposed product would facilitate the retirement saving of this group?
- what design features will be necessary to ensure that all employers offer access to such a product? For example, one design feature to achieve this could be mandatory offering.
- what design features will be necessary to allow for on going contributions to such a product or maintenance without contributions during periods of non-employment?
- what group of employees should the automatic enrolment rules apply to? Should there be any period between commencing employment and automatic enrolment to deal with employee turnover issues? For example, should automatic enrolment apply to all employees including part-time and casual?
- if early withdrawal of contributions is allowed, what circumstances would apply to allow for such earlier withdrawal of contributions?
- what limitations, if any, should be placed on the management of approved schemes? For example, level of administrative fees chargeable, the investment profiles of such products, the acceptance of small regular contributions, and allowance for periods of non-contribution.
- how can the compliance costs for employers, fund providers and employees associated with implementation and on-going provision of such a product be minimised?
- what is the best way to implement a generic work-based savings product and what are the lead-in times required by employers and fund providers?
The Working Group is to report back to the Minister of Finance and Revenue by the end of August 2004. That report will provide advice to the Government on how to resolve the detailed design and implementation issues associated limiting the broad adoption of generic work-based savings products